Your uncle is considering investing in a new company that will produce high quality stereo speakers.The sales price would be set at 1.5 times the variable cost per unit; the variable cost per unit is estimated to be $75.00; and fixed costs are estimated at $1,200,000.What sales volume would be required to break even,i.e.,to have EBIT = zero?
A)28,880
B)30,400
C)32,000
D)33,600
E)35,280

Question

Quizplus · Accepted Answer

To calculate the break-even point, we need to find the sales volume at which EBIT (earnings before interest and taxes) is zero.

EBIT = Revenue - Variable costs - Fixed costs

At the break-even point, EBIT = 0, so:

0 = Revenue - ($75/unit x Q) - $1,200,000

where Q is the sales volume in units.

We can rearrange this equation to solve for Q:

Q = (Revenue - $1,200,000)/$75/unit

We know that the sales price will be set at 1.5 times the variable cost per unit, so:

Revenue = 1.5 x $75/unit x Q

Substituting this into the previous equation:

Q = (1.5 x $75/unit x Q - $1,200,000)/$75/unit

Solving for Q, we get:

Q = 32,000

Therefore, the break-even point is at a sales volume of 32,000 units.

Your Uncle Is Considering Investing in a New Company That