Contemporary Corp. sells a single product for $80. Variable costs are 40%% of the selling price, and the company has fixed costs that amount to $500,000. Current sales total 18,000 units. Contemporary:
A)will break-even by selling 27,000 units.
B)will break-even by selling 10,417 units.
C)will break-even by selling 15,625 units.
D)will break-even by selling 18,000 units.
E)will break even by selling 12,000 units.

Question

Quizplus · Accepted Answer

To calculate the break-even point, we need to use the following formula:
Break-even point = Fixed Costs / (Price - Variable Costs)

The variable cost is 40% of the selling price, which means it is $32 per unit ($80 x 40%). So, the equation becomes:
Break-even point = $500,000 / ($80 - $32) = 10,417 units

Therefore, the best choice is B, which indicates that Contemporary will break-even by selling 10,417 units.