Tony's Beach T-Shirts has fixed annual operating costs of $75,000. Tony retails his T-shirts for $14.99 each and the variable cost per T-shirt is $4.99. Based on this information, the breakeven sales level in units is
A) 7,500.
B) 15,030.
C) 5,003.
D) none of the above.

Question

Quizplus · Accepted Answer

The breakeven sales level in units is calculated by dividing the fixed annual operating costs by the contribution margin per unit. The contribution margin per unit is the difference between the selling price per unit and the variable cost per unit. In this case, the fixed annual operating costs are $75,000, the selling price per unit is $14.99, and the variable cost per unit is $4.99. Therefore, the contribution margin per unit is $14.99 - $4.99 = $10.00. Dividing the fixed annual operating costs by the contribution margin per unit gives us the breakeven sales level in units, which is $75,000 / $10.00 = 7,500 units.

Tony's Beach T-Shirts Has Fixed Annual Operating Costs of $75,000