Question

Your firm expects to earn $647,800 after taxes next year. Sales will be $3,600,000 and fixed costs will be $1,400,000. Interest expense will amount to $300,000. Your firm manufactures office machines, and expects to sell 9,000 units next year. Your firm has a 21% tax rate and the variable costs is $120 per unit. How many units would you have to sell to break even?

Answer 1

Breakeven point is a situation of no profit no loss .

Selling price per unit =Estimated total sales /estimated number of units

                       = 3600000/9000

                       = 400 per unit

contribution per unit =selling price -variable cost

                  = 400-120

                   =$ 280 per unit

Total estimated fixed cost =other fixed cost+interest expense

                         = 1,400,000+300,000

                         = 1,700,000

Breakeven point (units) =Total estimated fixed cost /contribution per unit

                                = 1,700,000/ 280

                                = 6071.43 units (rounded to 6071 units)