Worksheet: Metric 7 BreakEven
1) Apprentice Mousetraps wants to know how many units of its “Magic Mouse Trapper” it
must sell to break even. The product sells for $20. It costs $5 per unit to make. The
company’s fixed costs are $30,000.
2) Apprentice Mousetraps wants to know how many dollars’ worth of its “Deluxe Mighty
Mouse Trapper” it must sell to break even. The product sells for $40 per unit. It costs $10
per unit to make. The company’s fixed costs are $30,000.
3) John’s Clothing Store employs three salespeople. It generates annual sales of $1 million
and an average contribution margin of 30%. Rent is $50,000. Each sales person costs
$50,000 per year in salary and benefits. How much would sales have to increase for John
to break even on hiring an additional salesperson?
4) A corn farmer wishes to identify how many bushels of corn he must sell to cover his
fixed cost at a given price. The farmer has costs consisting of $500 in real estate taxes,
$700 interest on a bank loan, and $800 in other fixed expenses. The variable cost per
bushel is $1, and covers labour, corn seed, herbicides and pesticides. If the price per
bushel is $2, how many bushels must he sell to break even?
5) If the farmer in question 4 sells only enough bushels to break even, what is his annual
profit? Identify two ways the farmer could increase his annual profit.
Answer to Question 1:
BreakEven Volume (#) = Fixed Costs ($) / Contribution per Unit ($)
Contribution per Unit = Sales Price per Unit – Variable Cost per Unit
= $20 – $5
BreakEven Volume (#) = $30,000 / $15
= 2,000 mousetraps
Answer to Question 2:
BreakEven Revenue ($) = Fixed Costs ($) / Contribution Margin (%)
Contribution Margin (%) = Contribution per Unit / Selling Price pe