A firm has fixed operating costs of $25,000, a per unit sales price of $5, and a variable cost per unit of $3. What is its operating break-even point if it desires net operating income of $10,000, not $0 (zero)?
A) 15,000 units
B) 17,500 units
C) 12,500 units
D) 25,000 units

Question

Quizplus · Accepted Answer

The formula to calculate the operating break-even point is:

Operating Break-Even Point (in units) = (Fixed Costs + Target Net Operating Income) / Contribution Margin per Unit

Contribution Margin per Unit = Sales Price per Unit - Variable Cost per Unit

Using the given information:

Contribution Margin per Unit = $5 - $3 = $2

Operating Break-Even Point (in units) = ($25,000 + $10,000) / $2 = 17,500 units

Therefore, the best choice is B, as the operating break-even point with a net operating income of $10,000 is 17,500 units.

A Firm Has Fixed Operating Costs of $25,000, a Per