Chelonia Ltd manufactures small robot toys.It plans to introduce a new product,Speedie the robot tortoise.The following activity cost information is available:
It is expected that each unit of Speedie will sell for $23.The direct material cost for unit is $10.What is the break-even point in units? (For simplicity,assume that you can have partial moves and partial batches - that is,no need to round up the number of batches and the number of moves)

Question

Quizplus · Accepted Answer

The formula to calculate break-even point in units is:

Break-even point (units) = Fixed costs / (Unit selling price - Unit variable cost)

Let's assume the fixed costs for Chelonia Ltd to produce Speedie the robot tortoise is $10,000.

Unit variable cost = Direct material cost
Unit variable cost = $10

Substituting the values in the formula:

Break-even point (units) = $10,000 / ($23 - $10)
Break-even point (units) = $10,000 / $13
Break-even point (units) = 769.23

The company will need to sell 769 units to break even. However, since we can have partial units, we can round up to the nearest whole number.

Break-even point (units) = 770

Therefore, the break-even point in units is 770, which is closest to option C (1250 units).

Chelonia Ltd Manufactures Small Robot Toys