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A company manufactures and sells widgets. The following information is available:• Each widget sells for $100.• The variable cost per widget is $50.• Total fixed costs per month are $300,000.How many widgets does the company need to sell each month to break even? 6,000 4,500 3,000 2,000

Question

A company manufactures and sells widgets. The following information is available:• Each widget sells for 100.•Thevariablecostperwidgetis100.• The variable cost per widget is 50.• Total fixed costs per month are $300,000.How many widgets does the company need to sell each month to break even? 6,000 4,500 3,000 2,000

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Solution

To calculate the break-even point, we need to know how many units must be sold to cover the fixed costs. This is done by dividing the total fixed costs by the contribution margin per unit. The contribution margin per unit is the selling price per unit minus the variable cost per unit.

Here's how to calculate it:

  1. Calculate the contribution margin per unit: Selling price per unit (100)−Variablecostperunit(100) - Variable cost per unit (50) = $50.

  2. Calculate the break-even point in units: Total fixed costs (300,000)/Contributionmarginperunit(300,000) / Contribution margin per unit (50) = 6,000 units.

So, the company needs to sell 6,000 widgets each month to break even.

This problem has been solved

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