At a breakeven point of 300 units, the variable costs were $600 and the fixed costs were $300. What will the next (i.e., 401st) unit sold contribute to profit before income taxes?
A) $0
B) $2
C) $1
D) Cannot be determined

Question

Quizplus · Accepted Answer

To calculate the contribution to profit before income taxes for the 401st unit sold, we need to first calculate the total cost of producing 401 units.

Total Cost = Fixed Cost + (Variable Cost per Unit * Number of Units)

Total Cost = $300 + ($600/300 * 401)

Total Cost = $1,902

Now, let's calculate the revenue from selling 401 units.

Revenue = Sales Price per Unit * Number of Units

Since we do not have information about the sales price per unit, we cannot calculate the revenue. Therefore, we cannot determine the profit before income taxes for the 401st unit sold based on the given information.

However, we can determine the contribution margin per unit using the total cost and the breakeven point.

Breakeven Point = (Fixed Costs) / (Sales Price per Unit - Variable Cost per Unit)

300 = $300 / (Sales Price per Unit - $2)

Sales Price per Unit = $4

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

Contribution Margin per Unit = $4 - $2

Contribution Margin per Unit = $2

This means that for every unit sold above the breakeven point, $2 will contribute to profit before income taxes. Therefore, the 401st unit sold will contribute $2 to profit before income taxes, assuming the sales price per unit remains constant. However, since we do not have information about the sales price per unit, the answer cannot be determined.

At a Breakeven Point of 300 Units, the Variable Costs