Question

Capital One produces a single product, which it sells for $8.00 per unit. Variable costs per unit equal $3.20. The company expects short-term fixed costs to be $7,200 for the coming month, at the projected sales level of 20,000 units. Management is considering several alternative actions designed to improve operating results. In conjunction with this, they have created a profit-planning (that is, a CVP) model, which can be used to evaluate different scenarios. What is Capital One's current break-even point in terms of number of units for the month? a) 1,500 units. b) 2,250 units. c) 4,000 units d) 3,330 units.

Answer 1

Answer:

Capital One's current break-even point in terms of number of units for the month is 1500 units

Explanation:

Break-even point in terms of number of units is the sales units required such that the company makes neither gain nor loss

break-even point in sales units=fixed costs/contribution margin per unit

fixed costs is $7,200

contribution margin=sales price per unit-variable cost per unit

sales price per unit is $8

variable cost per unit is $3.20

contribution margin=$8-$3.20=$4.80

break-even point=$7,200/$4.80=1,500 units

The correct option is A ,1500 units