Question

Gourmet Pets is interested in computing the break-even point for its new product Prime Cuts. The fixed costs of adding this product to the product line amounts to $20,000. Variable costs to produce one package of Prime Cuts are $2. Prime Cuts will sell for $6 per package. The break-even point would be:

Answer 1

Answer:

Break-even point=5,000 units

Explanation:

Giving the following information:

The fixed costs of adding this product to the product line amounts to $20,000. Variable costs to produce one package of Prime Cuts are $2. Prime Cuts will sell for $6 per package.

To calculate the break-even point, we need to use the following formula:

Break-even point= fixed costs/ contribution margin

Break-even point= 20,000/ (6 - 2)

Break-even point=5,000 units

Answer 2

Answer:

The breakeven point is 5000 units

Explanation:

The breakeven point in units can be calculated by using the following formula:

Breakeven Sales In Dollars = Fixed Cost / Contribution per unit

The fixed cost here is $20,000 and the contribution per unit is $4 ($6-$2).

So by putting the values, we have:

Breakeven Sales In Dollars = $20,000 / $4 per unit = 5000 Units

So the sales required to breakeven at a contribution per unit of $4 is 5000 units.