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Question 140 - CPIM-Part-2 discussion

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Product X sells for $20 each, and it has a variable cost of $5 per unit. The company sells 10,000 units per year and has a fixed cost of $120,000. What is the break-even point in units for Product X?

A.
6,000
Answers
A.
6,000
B.
8,000
Answers
B.
8,000
C.
10,000
Answers
C.
10,000
D.
24,000
Answers
D.
24,000
Suggested answer: B

Explanation:

The break-even point is the level of sales or output where the total revenue equals the total cost, and the profit is zero. The break-even point can be calculated in units or in dollars. To calculate the break-even point in units, the following formula can be used:

Break-even point in units = Fixed cost / (Selling price per unit - Variable cost per unit)

In this case, the fixed cost is $120,000, the selling price per unit is $20, and the variable cost per unit is $5. Plugging these values into the formula, we get:

Break-even point in units = 120,000 / (20 - 5) = 120,000 / 15 = 8,000

Therefore, the break-even point in units for Product X is 8,000. This means that the company needs to sell 8,000 units of Product X to cover its fixed and variable costs and make no profit or loss.

asked 16/09/2024
Andrzej Pawlus
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