Assuming that last year's fixed costs totaled $675,000, what was Rusty Co.'s break-even point in units?

Question

Quizplus · Accepted Answer

To calculate the break-even point in units, we need to divide the total fixed costs by the contribution margin per unit. We don't have the contribution margin per unit, so we can't use the formula to solve the problem, but we can use the information given in the question.

The question states that Rusty Co. sold 30,000 units at a price of $50 per unit and had a variable cost of $25 per unit. This means that the contribution margin per unit was $25 ($50 - $25).

To break even, Rusty Co. would need to sell enough units to generate total revenue that equals total fixed costs plus total variable costs. We know that total fixed costs were $675,000, but we don't have information on total variable costs. However, we can estimate total variable costs by multiplying the variable cost per unit by the number of units sold:

Total variable costs = 30,000 units x $25 per unit = $750,000

Now we can set up the equation to solve for the break-even point in units:

Total revenue = Total fixed costs + Total variable costs
Price x Quantity = Fixed Costs + Variable Cost per Unit x Quantity
$50 x Q = $675,000 + $25 x Q
$25 x Q = $675,000
Q = 27,000 units

Therefore, Rusty Co.'s break-even point in units is 27,000. Since this is not one of the answer choices, we can assume that the question is asking for an approximate break-even point. The answer choice closest to our calculation is C, which is 30,000 units.

Assuming That Last Year's Fixed Costs Totaled $675,000, What Was