At a breakeven point of 200 units, the variable costs were $400 and the fixed costs were $200. What will the next (i.e., 401st) unit sold contribute to profit before income taxes?
A) $0
B) $2.00
C) $1.00
D) Cannot be determined

Question

Quizplus · Accepted Answer

At the breakeven point of 200 units, the total cost is:

Total Cost = Fixed Cost + Variable Cost
Total Cost = $200 + ($400/200) * 200
Total Cost = $200 + $400
Total Cost = $600

So, to make a profit, the selling price per unit should be higher than $3 per unit.

For the 401st unit, the variable cost remains at $2 per unit. Thus, the profit before income taxes for the 401st unit will be:

Profit = Selling Price - Variable Cost - Fixed Cost
Profit = $3 - $2 - $200
Profit = $1

Therefore, the answer is C, the contribution to profit before income taxes for the 401st unit sold is $1.

At a Breakeven Point of 200 Units, the Variable Costs