Boswell Company reported the following information for the current year: Sales (50,000 units) $1,000,000, direct materials and direct labor $500,000, other variable costs $50,000, and fixed costs $360,000. What is Boswell's break-even point in units?

Question

Quizplus · Accepted Answer

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

Break-even point (units) = Fixed costs ÷ Contribution margin per unit

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

Contribution margin per unit = (Sales price per unit - Variable costs per unit)

Sales price per unit = Total sales ÷ Number of units sold
Sales price per unit = $1,000,000 ÷ 50,000 units
Sales price per unit = $20

Variable costs per unit = (Direct materials and direct labor per unit + Other variable costs per unit)
Variable costs per unit = ($500,000 ÷ 50,000 units) + ($50,000 ÷ 50,000 units)
Variable costs per unit = $10 + $1
Variable costs per unit = $11

Contribution margin per unit = ($20 - $11)
Contribution margin per unit = $9

Now, we can calculate the break-even point in units:

Break-even point (units) = $360,000 ÷ $9
Break-even point (units) = 40,000 units

Therefore, the correct answer is B) 40,000.

Boswell Company Reported the Following Information for the Current Year