Answer:
The formula can be derived by the following formula:
As we know
Sales - Cost = Profit
Sales - Total Variable Cost - Total Fixed Cost = Profit
(Sales - Total Variable Cost) - Total Fixed Cost = Profit
(Total Contribution) - Total Fixed Cost = Profit
(Total Contribution) = Profit + Total Fixed Cost
Contribution per unit * Number of units = (Profit + Total Fixed Cost)
Number of units = (Profit + Total Fixed Cost)/ Contribution per unit
Breakeven Point is the number of units at which we are at no profit no loss position.
At this position, Profit = zero
Number of units = Total Fixed Cost/ Contribution per unit.........Equation1
Now we can see that their is no contribution per unit as the sales per person is $6250 whereas the total variable cost is $6300. This means there is no contribution as:
Sales per person $6250 > Total variable cost is $6300
Contribution per unit = Sales Revenue per unit - Total variable cost
By putting values:
Contribution per unit = $6250 - $6300= -$50 loss
Losses can not cover the fixed cost or additional sales can not convert losses into profit.
<h2>
Correct figure for sales amount is $7500</h2>
Now
Contribution per unit = Sales per unit - Total Variable cost per unit
Contribution per unit = $7500 - $6300= $1200 per unit
Putting values in the Equation 1
Number of units = 500,000/ $1200= 416.67 units of sales.
