At the break even point, the total fixed costs over the Relevant Range are $200,

Question

At the break even point, the total fixed costs over the Relevant Range are $200,000; the combined income rate was 30%; the Contribution Margin Rate was 20%; and the Gross Margin was $186,000. If each item is sold at $1,000 per item, how many items must be sold to break even? At the break even point, what are the product costs/ costs of goods sold AND the period costs/ other costs? If each Item is sold at $1,000 per item, how many items must be sold to make a profit/net income of $100,000? SHOW WORK!!

Explanation / Answer

Step a: (Units X $2,000) = (Units X $800) + $1,200,000 Step b: (Units X $1,200) = $1,200,000 Step c: Units = 1,000 It is possible to “jump to step b” above by dividing the fixed costs by the contribution margin per unit. Thus, a break-even short cut is: Break-Even Point in Units = Total Fixed Costs / Contribution Margin Per Unit 1,000 Units = $1,200,000 / $1,200 Sometimes, one may want to know the break-even point in dollars of sales (rather than units). This approach is especially useful for companies with more than one product, where those products all have a similar contribution margin ratio: Break-Even Point in Sales = Total Fixed Costs / Contribution Margin Ratio $2,000,000 = $1,200,000 / 0.60 so items to be sold necessarily : 20,500 units

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