At the current level of operating leverage, the small manufacturing business needs to sell <u>18,182 units</u> of widgets to break even.
<h3>What is the break-even point?</h3>
The break-even point is the level of production and sales required so that the entity does not incur any losses or earn any profits.
At the break-even point, the total costs (fixed and variable) equal the sales revenue.
<h3>Data and Calculations:</h3>
Fixed assets = $400,000
Production cost of each widget = $3
Selling price per unit = $25
Variable cost per unit = $3 ($25 x 12%)
Contribution margin per unit = $22 ($25 - $3)
Break-even point in units = Fixed Costs/Contribution margin per unit
= 18,182 units ($400,000/$22)
Thus, at the current level of operating leverage, the small manufacturing business needs to sell <u>18,182 units</u> of widgets to break even.
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