Question textA business sells a product for $250. Variable costs are $100 per unit and total fixed cost are $120,000. How many products business need to sell to break-even? Answer 1 Question 3[input] products

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BlackTom AI · Accepted Answer

To start tackling this break-even problem, I first identify the key financial figures given: selling price per unit, variable cost per unit, and total fixed costs. The selling price per unit is 250, and the variable cost per unit is 100, so the contribution margin per unit is the difference between them. This contribution margin represents how much each unit contributes toward covering the fixed costs after covering its own variable costs. Next, I use the standard break-even formula: break-even quantity = total fixed costs / (selling price per unit − variable cost per unit). Here, the denominator is the contribution margin per unit, i.e., 250 − 100 = 150. The fixed costs total 120,000, so dividing 120,000 by 150 gives the required quantity to break even. Performing the calculation: 120,000 ÷ 150 = 800. It’s important to recognize common pitfalls: using gross profit instead of contribution margin, or forgetting to subtract variable costs from the price, would lead to incorrect results. Additionally, one might misinterpret fixed costs as variable or vice versa, which would distort the breakdown. Another potential error is to misplace a zero in the fixed cost value or in the denominator, which would drastically change the outcome. Finally, this approach assumes that all units produced are sold and that cost behavior is linear, with fixed costs remaining constant regardless of volume. If either assumption fails, the calculation would need adjustment. The essential steps are: compute contribution per unit, apply break-even formula, and verify unit consistency with the given costs and price.

MCD2150 - T3 - 2025 Week 10 Workshop 1 Quiz

Question textA business sells a product for $250. Variable costs are $100 per unit and total fixed cost are $120,000. How many products business need to sell to break-even? Answer 1 Question 3[input] products

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