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 (1)
Calculate the contribution margin per unit by subtracting the variable cost per unit from the selling price per unit: $19 - $7 = $12.
Calculate the breakeven point in units by dividing the fixed costs by the contribution margin per unit: $\frac{$111,000}{ 12} = 9250 .
The contribution margin is $12 .
The breakeven point is 9250 units.
Explanation
Problem Analysis 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.
Calculating Contribution Margin First, we need to calculate the contribution margin per unit. The contribution margin is the selling price per unit minus the variable cost per unit. C o n t r ib u t i o n M a r g in = S e ll in g P r i ce p er U ni t − Va r iab l e C os t p er U ni t C o n t r ib u t i o n M a r g in = $19 − $7 = $12 So, the contribution margin per unit is $12.
Calculating Breakeven Point Next, we calculate the breakeven point in units. The breakeven point is the fixed costs divided by the contribution margin per unit. B re ak e v e n P o in t ( u ni t s ) = C o n t r ib u t i o n M a r g in p er U ni t F i x e d C os t s B re ak e v e n P o in t ( u ni t s ) = $12 $111 , 000 = 9250 Therefore, the breakeven point is 9250 units.
Final Answer The contribution margin is $12 and the breakeven point is 9250 units.
Examples
Understanding breakeven points is crucial for businesses. For example, if you're starting a lemonade stand, calculating your breakeven point helps you determine how many cups of lemonade you need to sell to cover your initial costs, like the cost of lemons, sugar, and cups. Knowing this number allows you to set realistic sales goals and make informed decisions about pricing and production. Similarly, larger companies use breakeven analysis to decide whether to launch a new product or invest in a new market, ensuring they understand the sales volume needed to make the venture profitable. This concept is fundamental in business planning and financial analysis.
