Frank corporation has a single product. Its selling price is $80 and the variable costs are $30. The company’s fixed expenses are $5,000. What is the company’s break-even point in unit sales?.



Answer :

Unit CM = Selling price of $80 - Variable expense of $30 = $50.

Unit sales to break-even = Fixed expenses of $5,000 ÷ $50 = 100 units.

What does break-even mean?

The break-even point is the level of production at which the cost of production equals the profit of the product. In investing, break-even is said to be reached when the market price of an asset equals its original cost.

How is the break-even point calculated?

To calculate the break-even point in units, use the following formula: Break-even point (units) = fixed cost ÷ (selling price per unit – variable cost per unit) or in selling dollars, Use the following formula: break-even point (sales) = fixed costs ÷ contribution margin.

What is a good break-even point?

The break-even point is the point where total costs equal total revenues. In other words, there is no loss and no profit for SMEs. This means that we have reached a stage of production where the cost of production equals the revenue of the product.

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