Question

Hart Corporation sells a single product for $20 per unit. Last year, the company’s fixed costs were $75,000 and its operating income was $125,000. If the company sold 16,000 units last year, then its break-even point in unit sales was ______:
A. 6,000 units
B. 12,000 units
C. 14,100 units
D. 15,000 units

Answer 1

Answer:

Hart Corporation's break-even point in unit sales was A. 6,000 units

Explanation:

The break-even point is the level of production at which the costs of production equal the revenues for a product and calculated by using following formula:

Break-even point in units = Fixed cost/(Selling price per unit-Variable cost per unit)

The company sold 16,000 units, total sales = 16,000 x $20 = $320,000

Operating income = Total sales - Variable cost - Fixed cost

Variable cost = Total sales - Operating income - Fixed cost = $320,000 - $125,000 - $75,000 = $120,000

Variable cost per unit = $120,000/16000 = $7.5

Break-even point in units = $75,000/($20-$7.5) = 6,000 units