Question

Brief Exercise 18-08

Wildhorse Company has a unit selling price of $720, variable costs per unit of $380, and fixed costs of $196,520.

Compute the break-even point in units using (a) the mathematical equation and (b) unit contribution margin.

		(a) Mathematical Equation			(b) Unit contribution margin
Break-even point			units			units

Answer 1

a) mathematical equation

breakeven point is the point where there is no profit. Let at y units there is no profit situation

Total revenue - Total expense = profit

Total revenue - Total expense = 0

Total expense = Total revenue

Variable cost + fixed cost = sales revenue

$380y + $196,520 = $720y

$196,520 = $720y - $380y

$196,520 = $340y

578 = y

Break even point is at 578 units.

b) unit contribution margin

	($)
selling price	720
- variable cost	-380
contribution	340
fixed cost cost	196520

Break even units=fixed cost/ contribution

= $196520/$340

= 578 units