Question

Cullumber Company has a unit selling price of $650, variable costs per unit of $450, and fixed costs of $319,800. Compute the break-even point in units using (a) the mathematical equation and (b) unit contribution margin.

Answer 1

Answer:

(a)

Mathematical Equation for break-even

F = QP - QV

Where

F = fixed cost

Q = Break-even quantity

P = Selling price

V = Variable cost

F = Q ( P - V )

Q = F / ( P - V )

Q = $319,800 / ( $650 - $450 )

Q = $319,800 / $200

Q = 1,599 units

(b)

Contribution Margin = Price per unit - Variable cost per unit

Contribution Margin = $650 - $450 = $200

Break-even Point in Units = Fixed Cost / Contribution margin per unit

Break-even Point in Units = $319,800 / $200 = 1,599 units

Explanation:

Mathematical equation use the the break-even equation which represent the behavior of each element towards the break-even point.

Contribution per unit method use the contribution of each unit to calculate the break-even point.