Question

Break Even Analysis 1. A USB thumb drive production line will have $240,000 fixed costs variable costs per unit of $1.97. Each unit sells for $4.97. How many units must be sold to break even? 80,000 If demand is forecast at 120,000 units, should you operate the production line? Explain your decision.

Answer 1

Answer:

Instructions are below.

Explanation:

Giving the following information:

Fixed costs= $240,000

Unitary variable cost= $1.97

Selling price per unit= $4.97.

First, we need to calculate the break-even point in units:

Break-even point in units= fixed costs/ contribution margin per unit

Break-even point in units= 240,000 / (4.97 - 1.97)

Break-even point in units= 80,000 units

The break-even point analysis provides information regarding the number of units to be sold to cover for the fixed and variable costs.

If the forecasted sales are 120,000, this means that the company will cover costs and make a profit. The margin of safety is 40,000 units.