Question

Mitchell Company sells its product for $100 per unit. The company's accountant provided the following cost information:Manufacturing costs $25,000 + 45% of salesSelling costs $15,000 + 20% of salesAdministrative costs $25,000 + 10% of sales What is the company's break-even point in units?

Answer 1

Answer:

Break-even point= 2600 units

Explanation:

The break-even point refers to the units necessary to cover a company's total amount of fixed and variable expenses during a specified period of time.

The formula to calculate the break-even point is the following:

break-even point= fixed costs/contribution margin

Contribution Margin: The contribution margin is a product's price minus all associated variable costs (sales- variable costs), resulting in the incremental profit earned for each unit sold.

Fixed costs: A fixed cost is a cost that does not change with an increase or decrease in the amount of goods or services produced or sold.

In this case:

Contribution margin= $100 - (45+20+10)= $25

Fixed Costs= 25000+15000+25000= $65000

Break-even point= 65000/25= 2600 units