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?

Question

Quizplus · Accepted Answer

At the breakeven point, total costs equal total revenue, so:
Total cost = Fixed cost + Variable cost
$200 + ($400/200) x 200 = $600
Total revenue = Total cost = $600
Therefore, selling the 401st unit will generate revenue of $401, and the total cost of producing the 401 units will be:
$200 + ($400/200) x 401 = $802
Profit before income taxes for the 401st unit sold will be:
$401 - $802 = -$401 (a loss)
However, the question asks for the contribution to profit before income taxes, which means we need to subtract the variable cost of the 401st unit from the revenue it generates:
$401 - $400 = $1
So, the answer is C, since the 401st unit sold will contribute $1 to profit before income taxes.

At a Breakeven Point of 200 Units, the Variable Costs