Question

Ramirez Company sells a product for $80 per unit. The variable cost is $60 per unit, and fixed costs are $4,850,000. Determine (a) the break-even point in sales units and (b) the break-even point in sales units required for the company to achieve a target profit of $500,000. a. Break-even point in sales units units b. Break-even point in sales units required for the company to achieve a target profit of $500,000

Answer 1

Answer:

(a) 242,500 units

(b) 267,500 units

Explanation:

(a) Break-even point in sales units:

= Fixed costs ÷ (Selling price per unit - Variable cost per unit)

= $4,850,000 ÷ ($80 - $60)

= 242,500 units

(b) Break even point in sales units if the company desires a target profit of $500,000:

= (Fixed cost + Target profit) ÷ (Selling price per unit - Variable cost per unit)

= ($4,850,000 + $500,000) ÷ ($80 - $60)

= $5,350,000 ÷ $20

= 267,500 units