A manufacturing company is studying the feasibility of producing a new product. The selling price is expected to be $80. The new production line would manufacture up to 9,000 units at a variable cost of $15 per unit. Fixed costs would be $150,000. Variable selling and administration expenses would amount to $5. Determine the break-even point as a percent of capacity.
A) 27.78%
B) 28.55%
C) 29.32%
D) 32.45%
E) 41.62%

Question

Quizplus · Accepted Answer

The break-even point in units is calculated by dividing the total fixed costs by the contribution margin per unit, where the contribution margin per unit is the selling price per unit minus the variable cost per unit (including variable production and selling costs). Here, the contribution margin per unit = $80 - $15 - $5 = $60. The break-even point in units = $150,000 / $60 = 2,500 units. To find the break-even point as a percent of capacity: (2,500 units / 9,000 units) * 100 = 27.78%.

A Manufacturing Company Is Studying the Feasibility of Producing a New