Break-even analysis. Max's Brakes is introducing a new revolutionary brake-pad for vehicles that will never wear out. Max's will sell the pads for $100 a pair and they will cost $80 in variable costs to produce. If cash fixed expenses are $1,500 per year and the depreciation and amortisation expenses are $600 per year, then what is the Accounting Operating Profit Break-Even point for Max's?
A) 8 pairs
B) 21 pairs
C) 75 pairs
D) 105 pairs

Question

Quizplus · Accepted Answer

The break-even point in units is calculated by dividing the total fixed costs by the contribution margin per unit. The contribution margin per unit is the selling price per unit minus the variable cost per unit, which is $100 - $80 = $20. Total fixed costs are cash fixed expenses plus depreciation and amortisation, which is $1,500 + $600 = $2,100. Thus, the break-even point is $2,100 / $20 = 105 pairs.

Break-Even Analysis