Question

A new company to produce state-of-the-art car stereo systems is being considered by Jagger Enterprises. The sales price would be set at 1.5 times the variable cost per unit; the VC/unit is estimated to be $2.50; and fixed costs are estimated at $120,000. What sales volume would be required in order to break even, i.e., to have an EBIT of zero for the stereo business?

Answer 1

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

The sales price would be set at 1.5 times the variable cost per unit; the VC/unit is estimated to be $2.50; fixed costs are estimated at $120,000.

Sales price= 1.5*2.5= 3.75

To calculate the break-even point in units we need to use the following information:

Break-even point (units)= fixed costs/ contribution margin

Break-even point (units)= 120,000 / (3.75 - 2.5)= 96,000 units

Break-even point (dollars)= fixed costs/ contribution margin ratio

Break-even point (dollars)= 120,000 / (1.25/3.75)= $360,000