Question

Pulaski Plumbing Supply is planning to bring a new type of valve to market and is conducting a break-even analysis. For this analysis they are assuming a selling price of $2.50 per valve. The total fixed cost associated with producing the valve is $10,000. The variable cost to produce each valve is $2.10. In this analysis, what is the break-even point (BEP) for the valve? Multiple Choice a) 2,174 units b) 25,000 units c) 50,000 units d) 4,000 units e) 4,762 units.

Answer 1

Answer:

25,000 items

Explanation:

Data for Pulaski

Selling price $ 2.50

Variable cost $ 2.10

Fixed costs $ 10,000

What is BEP level

At BEP.

Revenue = Fixed costs + variable costs

Using contribution margin methods

Contribution margin per item= $ 2.50 - $ 2.10= $ 0.4

At BEP  quantity x0.4 = fixed costs

Q  x $ 0.4 =$ 10,000

Q=$10,000/0.4

BEP quantity: 25,000 items