Owen Conner works part-time packaging software for a local distribution company
ID: 417376 • Letter: O
Question
Owen Conner works part-time packaging software for a local distribution company in Indiana. The annual fixed cost is $15,000 for this process, direct labor is $3.75 per package, and material is $4.50 per package. The selling price will be $12.50 per package.
a. What is the break-even point in units? (Do not round intermediate calculations. Roundup your answer to the next whole number.)
b. How much revenue do we need to take in before breaking even? (Round your answer to the nearest dollar amount.)
Explanation / Answer
Fixed cost(FC) = $15000
Variable cost(VC) = direct labor cost + material cost = $3.75+$4.50 = $8.25
Selling price(SP) = $12.50
a) Break even point in units = FC / (SP - VC)
= 15000 / (12.50 - 8.25)
= 15000/ 4.25
= 3529.41 or rounded to 3530 units
b) Break even Revenue = Break even in units x SP
= 3530 units x $12.50
= $44125
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