Question

Sandhill Cash, Ltd. operates a chain of exclusive ski hat boutiques in the western United States. The stores purchase several hat styles from a single distributor at $16 each. All other costs incurred by the company are fixed. Sandhill Cash, Ltd. sells the hats for $33 each.

If fixed costs total $130,000 per year, what is the breakeven point in units? In sales dollars?

Answer 1

Answer:

Part (a) Breakeven point in units is 7,648 units

Part (b) Breakeven point in dollars is $ 252,352.94

Explanation:

Break Even Point is the Point where the firm makes neither a Profit nor a Loss.

The Break Even Point is Calculated as follows:

Breakeven point in units = Fixed Costs / Contribution per Unit

Therefore Breakeven point in units = $130,000/ ( $33 - $16)

                                                           = 7,647.05882

Consider the extra unit, thus Break - Even is  7,648 units

Breakeven point sales dollars = Fixed / Contribution Margin Ratio

Therefore Breakeven point in dollars = $130,000/ ($17/$33)

                                                              = $ 252,352.94