Grey, Inc. sells a single product for $20. Variable costs are $8 per unit and fixed costs total $120,000 at a volume level of 5,000 units. Assuming that fixed costs do not change, Green's break-even sales would be:

Question

Quizplus · Accepted Answer

To calculate the break-even sales, we can use the formula:
Break-even sales = (Fixed costs / Contribution margin ratio)
Contribution margin = Selling price - Variable costs
Contribution margin ratio = Contribution margin / Selling price
At a volume level of 5,000 units,
Contribution margin = $20 - $8 = $12
Contribution margin ratio = $12 / $20 = 0.6
Fixed costs = $120,000
Break-even sales = ($120,000 / 0.6) = $200,000
Therefore, the break-even sales for Grey, Inc. would be $200,000.

Grey, Inc Sells a Single Product for $20