Ampro-Mag is a small company that makes materials for safely controlling hazardous spills of all kinds. It sells these items as a neutralizing kit priced at $100. The costs of the materials that go into each kit are $45. It costs $5 in labor to assemble a kit. The company has monthly expenses of $1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising in trade journals, and $3,500 for the monthly salary of its owner. What is Ampro-Mag's monthly break-even point in terms of number of neutralizing kits sold?
A)40 kits
B)52 kits
C)104 kits
D)116 kits
E)520 kits

Question

Quizplus · Accepted Answer

To calculate the break-even point, we need to compute the total monthly expenses and divide them by the contribution margin per unit.

Total monthly expenses = $1,000 + $200 + $500 + $3,500 = $5,200

Contribution margin per unit = Selling price per unit - Variable cost per unit 
Selling price per unit = $100 
Variable cost per unit = $45 + $5 = $50 
Contribution margin per unit = $100 - $50 = $50

Break-even point (in units) = Total monthly expenses / Contribution margin per unit 
Break-even point (in units) = $5,200 / $50 = 104

Therefore, Ampro-Mag's monthly break-even point in terms of neutralizing kits sold is 104 kits (option C).

Ampro-Mag Is a Small Company That Makes Materials for Safely