Valdez Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. The break-even point in unit sales is closest to:

Question

Valdez Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range.  The break-even point in unit sales is closest to:

Quizplus · Accepted Answer

The formula to calculate the break-even point in unit sales is:
Break-even point (in units) = Fixed costs / Contribution margin per unit

Using the figures given in the contribution format income statement, we can calculate the contribution margin per unit as follows:

Contribution margin per unit = Selling price per unit - Variable cost per unit
= $80 - $45
= $35

Substituting the values in the formula, we get:

Break-even point (in units) = $105,000 / $35 = 3,000 units

Therefore, the break-even point in unit sales is 3,000 units.

However, the question asks for the closest answer in the given options. To find the closest answer, we need to calculate how many units are required to cover the nearest amount to the total of fixed costs. Looking at the options, we see that 5,400 units would generate $105,300 in contribution margin, which is the closest to the total fixed costs of $105,000. Therefore, the answer is D) 5,400 units.

Valdez Corporation Has Provided the Following Contribution Format Income Statement