Splurge Electronics sells homework machines for $80 each.Variable costs per unit are $45 and total fixed costs are $43,750.Splurge Electronics expects it can sell 1,500 units next year.By how many units can Splurge's sales drop before the company incurs a loss?

Question

Quizplus · Accepted Answer

To determine the number of units Splurge Electronics can sell before incurring a loss, we first calculate the break-even point. The break-even point in units is calculated as total fixed costs divided by the contribution margin per unit (selling price per unit - variable cost per unit). Here, the contribution margin per unit is $80 - $45 = $35. The break-even point is $43,750 / $35 = 1,250 units. Since the company expects to sell 1,500 units, it can afford a sales drop of 1,500 - 1,250 = 250 units before it incurs a loss.

Splurge Electronics Sells Homework Machines for $80 Each