At a sales level of 20,000 units,Pony Corp.has sales of $400,000,a variable cost ratio of 60%,and a profit of $40,000.What is the break-even point in units?
A)8,000
B)12,000
C)15,000
D)20,000

Question

Quizplus · Accepted Answer

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

Contribution Margin = Sales - Variable Costs 
Contribution Margin = $400,000 - (0.60 x $400,000) 
Contribution Margin = $400,000 - $240,000 
Contribution Margin = $160,000

Next, we can use the contribution margin to find the break-even point:

Break-Even Point (in units) = Fixed Costs / Contribution Margin

We know that at a sales level of 20,000 units, the profit is $40,000. Therefore, we can find the fixed costs:

Profit = (Sales - Variable Costs) - Fixed Costs 
$40,000 = ($400,000 - 0.60 x $400,000) - Fixed Costs 
$40,000 = $160,000 - Fixed Costs 
Fixed Costs = $160,000 - $40,000 
Fixed Costs = $120,000

Now we can use the fixed costs and contribution margin to find the break-even point:

Break-Even Point (in units) = $120,000 / $160,000 
Break-Even Point (in units) = 0.75

Since we can't have 0.75 of a unit, we need to round up to the nearest whole number.

Break-Even Point (in units) = 1

Therefore, Pony Corp. needs to sell at least 15,000 units to break even.

At a Sales Level of 20,000 Units,Pony Corp