Corner Cupcakes Co. is selling cupcakes for $10 for a box of one dozen. Corner has fixed costs equaling $108,000 per year, and its accountant has calculated the contribution margin ratio on each box of donuts to be 60% of the selling price. Based on this information, which of the following statements is correct?

Question

Quizplus · Accepted Answer

Break-even is equal to the point at which sales in units multiplied by contribution margin is equal to total fixed costs. If fixed costs equal $108,000 per year, then they equal $9,000 per month (108,000 per year ÷ 12 months). The break-even point is therefore equal to the point at which contribution margin is $9,000 per month. If each box sells for $10 and the contribution margin is 60%, then the contribution margin per box of donuts sold is $6.00 ($10 × 60%). If fixed costs are $9,000 per month and the contribution margin per box is $6.00, then $9,000 ÷ $6.00 = a break-even point of 1,500 boxes per month.