A producer with only one product has total fixed costs of $15,000 per month. In addition, it cost the producer $100 in variable costs to produce each unit of his product (raw materials and direct labor cost). The producer charges his wholesalers $125 per unit. What is the sales amount to break even?
A) $70,000
B) $75,000
C) $80,000
D) $85,000
E) $90,000

Question

Quizplus · Accepted Answer

To break even, the producer must cover both the fixed costs and the variable costs with the revenue. The break-even point in units can be calculated as the fixed costs divided by the contribution margin per unit (selling price per unit - variable cost per unit). Here, the contribution margin per unit is $125 - $100 = $25. Thus, the break-even point in units is $15,000 / $25 = 600 units. To find the sales amount to break even, multiply the number of units by the selling price per unit: 600 units * $125 = $75,000.

A Producer with Only One Product Has Total Fixed Costs