Q7SE

Question

Calculating breakeven point in units, contribution margin ratio given

Ocean Company sells a product with a contribution margin ratio of 80%. Fixed costs are $2,800 per month. What amount of sales (in dollars) must Ocean Company have to break even? If each unit sells for $30, how many units must be sold to break even?

Step-by-Step Solution

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Answer

The amount of sales is $3,500 and units are 117.

1Calculation of amount of sales (in dollars)

$R e q u i r e d s a l e s i n d o l l l e r s = F i x e d c o s t s + T a r g e t p r o f i t / C o n t r i b u t i o n m a r g i n r a t i o = \frac{$ 2, 800 + $ 0}{80 %} = $ 3, 500$

2If each unit sell for $30, how many units must be sold to breakeven

$Rquired sale in units = \frac{Fixed costs + Target profit}{contribution margin per unit} = \frac{($ 2, 800 + $ 0)}{$ 30 \times 80 %} = \frac{$ 2, 800}{$ 24} = 117 units$

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