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Larsen Films' is analyzing its cost structure. Its fixed operating costs are $470,000, its variable costs of $2.80 per unit produced, and its products sell for $4.00 per unit. What is the company's breakeven point, i.e., at what unit sales volume would income equal costs

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Answer:

BEP dollars = 470,000/0.3 = $1,566,666.67

BEP units    = 470,000 / 1.2 = 391,667 units

Explanation:

Break Even Point (dollars) = fixed cost/ contribution margin ratio

Break Even Point (units)    = fixed cost/ contribution margin per unit

contribution margin per unit = sales price - variable cost

contribution margin ratio      = contribution margin per unit / sales price

contribution per unit = 4 - 2.8 = 1.2

contribution ratio = 1.2 / 4 = 0.3

BEP dollars = 470,000/0.3 = 1,566,666.67

BEP units    = 470,000 / 1.2 = 391,666.67

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