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Widgets sell for $80 each, cost $30 each in variable cost, and fixed factory overhead is $120,000 a month. What is the monthly breakeven point?
A1,500 units
B2,400 units
C3,400 units
D4,000 units
Answer & Solution
Correct answer: B. 2,400 units
1. Unit contribution margin is $80 minus $30, which is $50.
2. Breakeven in units is fixed costs divided by that margin.
3. $120,000 divided by $50 gives 2,400 units per month.
4. A check: 2,400 units times $50 is $120,000, exactly the fixed costs.
5. 3,400 units is the answer only once a target profit of $50,000 is added to the numerator.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 5.3.1 Interpreting the Breakeven Result_
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