Cost Accounting

Question

Fixed costs are $120,000; selling price per unit = $150; total absorption costs per unit = $90; marginal cost per unit = $70. What is the break-even point in units (to the nearest whole unit)?

Answer 1

Breakeven in units = Fixed Cost / Contribution Margin per unit

Fixed Costs = $120,000

Contribution Margin per unit = Selling Price per unit less Variable Costs

Selling Price per unit = $150 per unit

Variable Costs per unit =? The problem gives us the Absorption costs per unit that includes a portion of fixed costs and a Marginal cost per unit that represents the cost to produce an extra unit. The Marginal costs of $70 per unit should be closed to the Variable costs.

Contribution Margin per unit = $150 - $70 = $80 per unit

Breakeven - $120,000 / $80 per unti = 1,500 Units