Jones and Heather started the JH Widget Company in 2014 to manufacture widgets.

Question

Jones and Heather started the JH Widget Company in 2014 to manufacture widgets. They rented a building, bought equipment, and hired employees to work full time at fixed monthly salaries. Utilities and other operating charges remained fairly constant during each month. JH Widget Company sells each widget at $70 each. JH paid fixed costs of $5,850 per month and variable costs of $25 per widget. Jones and Heather are concerned about the break-even and probability. Using the equation method to do your calculations, explain to Jones and Heather how many widgets must be sold, and the totals sales revenue that must be reached, in order to break-even.

Explanation / Answer

Sales widget = $70 each.

variable costs = $25 per widget.

Contribution = $45 per weight

Contribution as % of sales = 45/70 * 100 = 64.286

JH paid fixed costs = $5,850 per month

Breakeven sales = fixed cost / contribution margin

= $5850 / 0.64286

= 9100

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