Young Guns Company, which sells tents, has provided the following information: Price per unit $40...

Question:

Young Guns Company, which sells tents, has provided the following information:

Price per unit $40
Variable cost per unit 12
Fixed costs per month $12,600

What are the required sales in units for Young to break even?

A. 315 units

B. 450 units

C. 1,050 units

D. 252 units

Break Even Point:

Break even point is the point at which revenues cover costs. Stated differently, break even point is when revenues equal costs. The formula to calculate break even point in units is:

  • Break Even Point in Units = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit)

Multiplying the break even point in units by the selling price per unit results in the break even point in dollar sales.

Answer and Explanation:

To calculate break even point in units, we'll use this formula:

  • Break Even Point in Units = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit)

Plugging in the data provided to us, we'll solve

  • Break Even Point in Units = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit)
  • Break Even Point in Units = $12,600 / ($40 per unit - $12 per unit)
  • Break Even Point in Units = $12,600 / $28 per unit
  • Break Even Point in Units = 450 units

The correct answer is B. 450 units


Learn more about this topic:

How to Calculate the Break-Even Point - Definition & Formula

from Financial Accounting: Help and Review

Chapter 5 / Lesson 28
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