Reese, Inc. produces pliers. Each pair of pliers sells for $8.00. Variable costs per unit total $5.60 of which $2.50 is for direct materials and $2.10 is for direct labour.
-If targeted after-tax net income is $27,000 with a 40 percent tax rate, contribution margin per unit is $0.80, and total fixed costs are $148,000, how many units must be sold to break even?
A) 218,750
B) 241,250
C) 185,000
D) 167,250

Question

Quizplus · Accepted Answer

To calculate the break-even point, we need to use the formula:

Break-even point (in units) = Fixed Costs / Contribution Margin per unit

First, we need to calculate the contribution margin per unit:

Contribution margin per unit = Selling price per unit - Variable costs per unit

Contribution margin per unit = $8.00 - $5.60 = $2.40

Next, we calculate the break-even point:

Break-even point (in units) = $148,000 / $2.40

Break-even point (in units) = 61,666.67

Since we can't sell a fraction of a unit, we need to round up to the nearest whole unit:

Break-even point (in units) = 61,667

Therefore, we need to sell 185,000 pliers (61,667 x 3) to break even, since 3 pliers are sold for every unit.

The correct answer is C.