Question

Break-Even in Units

Gelbart Company manufactures gas grills. Fixed costs amount to $22,779,900 per year. Variable costs per gas grill are $315, and the average price per gas grill is $900.

Required:

1. How many gas grills must Gelbart Company sell to break even?
gas grills

2. If Gelbart Company sells 42,290 gas grills in a year, what is the operating income?
$

3. If Gelbart Company’s variable costs increase to $333 per grill while the price and fixed costs remain unchanged, what is the new break-even point? If required, round your answer to the nearest whole number.
gas grills

Answer 1

(1)

Contribution margin per unit = sales price per unit - variable cost per unit

= $900 - $315 = $585

Break even point (unit sales) = fixed expenses/contribution margin per unit

= $22,779,900/$585

= 38,940 units

therefore 38,940 units of gas grills need to be sold in order to break even.

(2)

Operating income = (contribution margin x sales units) - fixed costs

= ($585 x 42290) - $22,779,900

= $1,959,750

therefore the operating income is $1,959,750

(3)

New Contribution margin per unit = sales price per unit - variable cost per unit

= $900 - $333 = $567

Break even point (unit sales) = fixed expenses/contribution margin per unit

= $22,779,900/$567

= 40,176 units

therefore 40,176 units of gas grills need to be sold in order to break even.