If fixed expenses are $40,000, the break-even in sales dollars is $64,000, and the selling price per unit is $80, then the variable expense per unit is

Question

Quizplus · Accepted Answer

The break-even point formula is:

Break-even point (in units) = Fixed expenses / Contribution margin per unit

Break-even point (in sales dollars) = Fixed expenses / Contribution margin ratio

We are given:

Fixed expenses = $40,000
Break-even point (in sales dollars) = $64,000
Selling price per unit = $80

Using the second formula, we can find the contribution margin ratio:

$64,000 = $40,000 / Contribution margin ratio

Contribution margin ratio = $40,000 / $64,000
Contribution margin ratio = 0.625

We can also find the contribution margin per unit:

Contribution margin per unit = Selling price per unit - Variable expense per unit

0.625 * Sales price per unit = $80 - Variable expense per unit

Variable expense per unit = $80 - (0.625 * $80)
Variable expense per unit = $80 - $50
Variable expense per unit = $30

Therefore, the variable expense per unit is approximately $30. The best choice is C.

If Fixed Expenses Are $40,000, the Break-Even in Sales Dollars