Question of the Week
a) The break-even point for the company occurs when it sells 500,000 units. At 1,000,000 units sold, the company would incur a profit of $1,000,000.
b) The company will break even when it sells $1,000,000 worth of widgets.
c) At its break-even point, the company's fixed costs will still be only $1,000,000.
d) The company will break even when it sells $2,500,000 worth of widgets.
The correct answer is: b)
break-even point can be derived as follows:
(Sales price per unit)(x) - (Variable cost per unit)(x) - Fixed Costs = 0
Where (x) is the number of units sold.
Substituting for all the variables, we get:
5x - 3x -1,000,000 =
For 1,000,000 units sold, we can use the same equation as follows:
(5) (1,000,000) - (3) (1,000,000) - 1,000,000 =
CFA Level 2 2005 LOS: 8.1.E.f