Sales (50,000 units) $1,000,000, direct materials and direct labor $500,000, other variable costs $50,000, and fixed costs $180,000. What is Boswell break-even point in units?
A) 16,364.
B) 20,000.
C) 25,556.
D) 28,125.

Question

Quizplus · Accepted Answer

To calculate the break-even point, we need to use the formula:

Break-even point (units) = Fixed costs ÷ Contribution margin

First, we need to find the contribution margin per unit:

Contribution margin per unit = Sales price per unit - (Direct materials per unit + Direct labor per unit + Other variable costs per unit)

Contribution margin per unit = $1,000,000 ÷ 50,000 units - ($500,000 ÷ 50,000 units + $50,000 ÷ 50,000 units)

Contribution margin per unit = $20

Now we can calculate the break-even point in units:

Break-even point (units) = $180,000 ÷ $20

Break-even point (units) = 9,000 units

Therefore, the best choice is B, as the break-even point in units is 9,000. Since the company has already sold 50,000 units, they are way beyond their break-even point.

Sales (50,000 Units) $1,000,000, Direct Materials and Direct Labor $500,000