MFG Manufacturing sells a product for $40 per unit. The production cost of the product is...
MFG Manufacturing sells a product for $40 per unit. The production cost of the product is $21 per unit: direct materials of $8, direct labor of $7, variable overhead of $4 and fixed overhead of $2. The fixed overhead per unit comes from dividing $500,000 of fixed factory overhead by 250,000 units produced. In addition, MFG pays $3 for shipping each unit sold. Finally, MFG has fixed costs outside the factory (such as office building depreciation and salaries) that total $200,000 per year.
Breakeven in units is:
9,091
10,527
11,112
12,500
38,889
38889 is the correct answer, but I am not sure how to calculate. Please provide an explanation. Thank you!
Homework Answers
Correct Answer is 38889.
Break even in units = Fixed cost / Contribution margin per unit
Fixed cost = $500000 + $200000 = $700000
Contribution margin per unit = Sale price - Variable cost per unit
Variable cost per unit = Direct material + Direct labor + variable overhead + shipping charge
= $8 + $7 + $4 + $3 = $22
Contribution margin per unit = $40 - $22 = $18
Break even units = $700000 / $18 = 38889 units.
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