Question

Davison Toaster Corp. sells its products for $110 per unit. It has the following costs: Rent...

Davison Toaster Corp. sells its products for $110 per unit. It has the following costs:

Rent $ 103,200
Factory labor $ 16 per unit
Executive salaries $ 160,000
Raw materials $ 7 per unit

The break-even point is

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Answer #1

Variable costs per unit = Raw materials per unit + Factory labor per unit

= $7 + $16

= $23

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

= $110 - $23

= $87

Fixed costs = Rent + Executive salaries

= $103,200 + $160,000

= $263,200

Break-even point = Fixed costs / Contribution margin per unit

= $263,200 / $87

= 3,025 units

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