At a level of 20,000 units sold,Gail Corp.has sales of $400,000,a contribution margin ratio of 40%,and a profit of $40,000.What is the break-even point in units?
A)12,000
B)8,000
C)20,000
D)15,000

Question

Quizplus · Accepted Answer

First, we can use the given information to calculate the contribution margin per unit:
Contribution Margin Ratio = (Sales - Variable Costs) / Sales
0.40 = (400,000 - Variable Costs) / 400,000
Variable Costs = 240,000
Contribution Margin per Unit = (400,000 / 20,000) - (240,000 / 20,000) = 8 - 12 = -4

Next, we can use the formula for the break-even point in units:
Break-even Point in Units = Fixed Costs / Contribution Margin per Unit

We can rearrange the formula to solve for fixed costs:
Fixed Costs = (Contribution Margin per Unit * Break-even Point in Units)

We are given that at 20,000 units sold, the profit was $40,000. We can use this information to solve for fixed costs:
Profit = (Contribution Margin per Unit * Units Sold) - Fixed Costs
40,000 = (-4 * 20,000) - Fixed Costs
Fixed Costs = 120,000

Now we can use the formula for the break-even point:
Break-even Point in Units = 120,000 / (-4) = 30,000 / 2 = 15,000 units

Therefore, the answer is D) 15,000 units.

At a Level of 20,000 Units Sold,Gail Corp