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HiCal Candies, a candy producer using an activity based costing system, sells 20,000 almond chocolate bars per month at $2 per bar. Unit level costs are $0.50 per bars; facility costs are $5,000 per month; six set-ups are required per month at a cost of $500 per set-up. Product level activities for the moth consist of $200 per month for product maintenance, $800 per month for product promotion.
-What is HiCal's break-even quantity (rounded)?

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Quizplus · Accepted Answer

The break-even quantity is calculated by dividing the total fixed costs by the contribution margin per unit. Total fixed costs are $5,000 (facility) + $3,000 (set-ups) + $200 (product maintenance) + $800 (product promotion) = $9,000. The contribution margin per unit is $2 (selling price) - $0.50 (unit level cost) = $1.50. Therefore, the break-even quantity is $9,000 / $1.50 = 6,000 units.

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