Question

Northern Pacific Fixtures Corporation sells a single product for $28 per unit. If variable expenses are 65% of sales and fixed expenses total $9,800, the break-even point is: (Round your intermediate calculations to 2 decimal places.)

Answer 1

Answer:

The break-even point is $28,000

Explanation:

Since, the sale value is not given in the question, so we have to compute the profit volume ratio which is equals to

= (Sales per unit  - Variable cost per unit ) ÷ Sales × 100

Where,

Sale per unit is $28

Variable cost per unit = 65% of sales per unit = 65 ÷100 × 28 = $18.2

So, profit volume ratio equals to

=  ($28 - $18.2) ÷ $28 × 100

= 35%

Now, we can easily calculate the break even point. The formula is shown below:

= Fixed expense ÷ Profit volume ratio

= $9,800 ÷ 35%

= $28,000

Hence, the break-even point is $28,000

Answer 2

Answer:

Break even point in dollars = $28,000

Explanation:

We know Sales - Variable Cost = Contribution

Thus, if we are provided that Variable expenses = 65% then contribution = 100 - 65 = 35%

Also provided selling price per unit = $28

Contribution Therefore = $28 $\times$ 35% = $9.80

Break even point in dollars = $\frac{Fixed\: Cost}{Contribution\: Margin}$

Here, fixed cost = $9,800

Contribution margin = 35%

Putting values in above formula we have,

Break even point in dollars = $\frac{9,800}{0.35} = 28,000$