Hollis Company sells a single product for $20 per unit. The company's fixed expenses total $240,000 per year, and variable expenses are $12 per unit of product. The company's break-even point is:
A) $400,000
B) $600,000
C) 20,000 units
D) 12,000 units
Answer: B) $600,000
Explanation
Contribution margin Ratio = (Selling Price - Variable expense per unit) / Selling Price
= ($20 - $12) / 20
= 8 / 20
= 40%
Break even Point = Fixed Expenses / Contribution margin Ratio
= $240,000 / 40%
= $600,000
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