   Chapter 21, Problem 21.3APE

Chapter
Section
Textbook Problem

Break-even pointBigelow Inc. sells a product for $800 per unit. The variable cost is$600 per unit, while fixed costs are $1,200,000. Determine (a) the break-even point in sales units and (b) the break-even point if the selling price were increased to$850 per unit.

(a)

To determine

Break-even Point: It refers to a point in the level of operations at which a company experiences its revenues generated is equal to its costs incurred. Thus, when a company reaches at its break-even point, it reports neither an income nor a loss from operations. The formula to calculate the break-even point in sales units is as follows:

Break-evenpointinSales(units) =FixedCostsContributionMarginperunit

To determine: the break-even point in sales units.

Explanation

Determine the break-even point in sales units.

Fixed cost =$1,200,000 Contribution margin per unit =$200 per unit (1)

Break-evenpointinSales(units) =FixedCostsContributionMarginperunit=$1,200,000$200=6,000units

Working note:

Determine the contribution margin per unit

(b)

To determine
the break-even point if the selling price increased to \$850 per unit.

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