Calculate the breakeven point and contribution margin.
| | Breakeven point | Fixed cost | Contribution margin | Selling price per unit | | Variable cost per unit |
|---|---|---|---|---|---|---|
| | units | $111,000 | | $19 | | |
Answer (2)
Calculate the contribution margin by subtracting the variable cost per unit from the selling price per unit: CM = SP − V C = $19 − $11 = $8 .
Determine the breakeven point in units by dividing the fixed costs by the contribution margin: BEP = CM FC = $8 $111 , 000 = 13875 .
The contribution margin is $8 per unit.
The breakeven point is 13875 units.
Explanation
Understanding the Problem We are given the fixed costs, the selling price per unit, and the variable cost per unit. We need to calculate the contribution margin and the breakeven point in units. Let's define the variables first: Fixed Costs (FC) = $111,000, Selling Price per unit (SP) = $19, Variable Cost per unit (VC) = $11.
Calculating Contribution Margin The contribution margin (CM) is the difference between the selling price per unit and the variable cost per unit. This tells us how much revenue from each unit sold contributes towards covering the fixed costs. The formula is: CM = SP − V C Substituting the given values: CM = $19 − $11 = $8 So, the contribution margin per unit is $8.
Calculating Breakeven Point The breakeven point (BEP) in units is the number of units that need to be sold to cover the fixed costs. It is calculated by dividing the fixed costs by the contribution margin per unit. The formula is: BEP = CM FC Substituting the given values: BEP = $8 $111 , 000 = 13875 Therefore, the breakeven point is 13,875 units.
Final Answer In conclusion, the contribution margin is $8 per unit, and the breakeven point is 13,875 units. This means the company needs to sell 13,875 units to cover all its fixed costs.
Examples
Understanding breakeven points is crucial for businesses. For example, if you're starting a small bakery, knowing your fixed costs (rent, utilities) and the contribution margin on each pastry helps determine how many pastries you need to sell each month to cover your expenses. This ensures you're not operating at a loss and can start making a profit. It's a fundamental concept in business planning and financial analysis.
The contribution margin is $8 per unit, which is calculated by subtracting the variable cost from the selling price. The breakeven point is 13,875 units, meaning that amount needs to be sold to cover the fixed costs of $111,000.
;
