Talk Time Cellular sells smart phones for $150.The unit variable cost per phone is $25 plus a selling commission of 10%.Fixed manufacturing costs total $5,600 per month, while fixed selling and administrative costs total $2,100.How many phones must be sold to avoid a loss on the company's income statement?

Question

Quizplus · Accepted Answer

To avoid a loss, the company's revenue must at least be equal to its total costs.
Let’s start by calculating the unit contribution margin:

Unit Selling Price = $150
Variable Cost = $25 + ($150 × 10%) = $40
Unit Contribution Margin = $150 – $40 = $110

Next, we need to calculate the break-even point in units:

Break-even units = (Total fixed costs) / (Unit contribution margin)

Break-even units = ($5,600 + $2,100) / $110 = 70.9

Since we cannot sell a fraction of a phone, we need to round up to 71 phones.
Therefore, the company must sell at least 70 phones to avoid a loss. The closest option is (C) 70 phones.

Talk Time Cellular Sells Smart Phones for $150