A new company to produce state-of-the-art car stereo systems is being considered by Jagger Enterprises.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

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

CM = Sales price - VC
CM = 1.5($2.50) - $2.50
CM = $1.25

Then, we can use the break-even formula to calculate the required sales volume:

Break-even volume (BEV) = Fixed costs / CM

BEV = $120,000 / $1.25
BEV = 96,000

Therefore, a sales volume of 96,000 units would be required to break even.

A New Company to Produce State-Of-The-Art Car Stereo Systems Is