Question

Question 5 (1 point)

Tim Taylor has written a self improvement book that has the following cost characteristics:

Selling Price	$16.00 per book
Variable cost per unit:
Production	$4.00
Selling & administrative	2.00
Fixed costs:
Production	$96,400 per year
Selling & administrative	21,000 per year

How many units must be sold to break-even?

Round to two decimal places.

Your Answer:

Question 5 options:

Answer

Answer 1

Variable costs per unit

= Variable production costs + Variable selling and administrative costs

= $4 + $2

= $6 per unit

Contribution margin per unit

= Selling price per unit – Variable costs per unit

= $16 - $6

= $10 per unit

Total Fixed costs

= Fixed Production Costs + Fixed Selling & administrative costs

= $ 96,400 + $ 21,000

= $ 117,400

So, Number of units that must be sold to break even

= Total Fixed costs / Contribution margin per unit

= $ 117,400 / $10

= 11,740 units