Question

LO 3.2If a company has fixed costs of $6,000 per month and their product that sells for $200 has a contribution margin ratio of 30%, how many units must they sell in order to break even?
100
180
200
2,000

Answer 1

Answer:

Correct answer is 100 units

Explanation:

Break-even in unit formula is unit contribution margin divided by total fixed cost. To illustrate further, computation is as follows:

Step 1. Compute the unit contribution margin. We have to multiply unit sales price to the contribution margin ratio given to get it.

unit sales price  $200 x 20% = $60

Step 2. Compute the Break-even in units by dividing total fixed cost by the unit contribution margin.

BEP = total fixed cost / unit contribution margin

BEP = $6,000 / $60

BEP = 100 units