Senbet Ventures is considering starting a new company to produce stereos. The sales price would be set at 1.5 times the variable cost per unit; the VC/unit is estimated to be $2.50; and fixed costs are estimated at $120,000. What sales volume would be required in order to break even, i.e., to have an EBIT of zero for the stereo business?
A) 86,640
B) 91,200
C) 96,000
D) 100,800
E) 105,840

Question

Quizplus · Accepted Answer

The break-even point in units is calculated by dividing the fixed costs by the contribution margin per unit. The contribution margin per unit is the sales price per unit minus the variable cost per unit. Given that the sales price is 1.5 times the variable cost, the sales price is $3.75 ($2.50 * 1.5). The contribution margin per unit is $3.75 - $2.50 = $1.25. Therefore, the break-even point is $120,000 / $1.25 = 96,000 units.

Senbet Ventures Is Considering Starting a New Company to Produce