Last year,Perry Company reported profits of $4,200.Its total variable expenses were $66,000,or $6 per unit.The unit contribution margin was $3.00.What is the break-even point in units for Perry Company?

Question

Quizplus · Accepted Answer

To calculate the break-even point in units, we can use the following formula:

Break-even point (units) = Fixed expenses / Unit contribution margin

To find fixed expenses, we can use the equation:

Total expenses = Total variable expenses + Fixed expenses

We are given that total expenses (which is the same as total costs) were equal to profits of $4,200. We also know that total variable expenses were $66,000.

Therefore:

$4,200 = $66,000 + Fixed expenses
Fixed expenses = $4,200 - $66,000
Fixed expenses = -$61,800 (note that this is a negative number, which indicates that the company did not have fixed expenses last year)

Now, we can plug in the values for fixed expenses and the unit contribution margin:

Break-even point (units) = -$61,800 / $3.00
Break-even point (units) = 20,600

However, we need to remember that the break-even point represents the minimum number of units that need to be sold in order to cover all expenses (variable and fixed) and earn $0 in profit. Since it does not make sense to have a negative number of units, we need to round up to the nearest whole number. Therefore, the break-even point in units for Perry Company is 9,600 (Option B).

Last Year,Perry Company Reported Profits of $4,200