Question

Target Profit Trailblazer Company sells a product for $270 per unit. The variable cost is $105 per unit, and fixed costs are $495,000. Determine (a) the break-even point in sales units and (b) the break-even point in sales units if the company desires a target profit of $128,700. a. Break-even point in sales units units b. Break-even point in sales units if the company desires a target profit of $128,700 units

Answer 1

For break even point, we need to calculate the contribution margin per unit first:

Contribution margin per unit = Selling price per unit - Variable cost per unit

Contribution margin per unit = $270 - $105 = $165 per unit

(a) Break even point in sales units = Fixed cost / Contribution margin per unit

Given: Fixed cost = $495000, Contribution margin per unit = $165 (as calculated above)

Putting the values in the above equation, we get,

Break even point in sales units = $495000 / $165 = 3000

So, break even point is 3000 units.

(b) Break even point for target profit of $128700 = Fixed cost + $128700 / Contribution margin per unit

Break even point for target profit of $128700 = $495000 + $128700 / $165

Break even point for target profit of $128700 = $623700 / $165 = 3780

So, break even point for target profit of $128700 is 3780 units.