MKT 100 Study Guide - Herbicide, Fixed Cost

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21 Apr 2012
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Worksheet: Metric 7 Break-Even
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 $30,000.
Answer:
Break-Even Volume (#) = Fixed Costs ($) / Contribution per Unit ($)
Contribution per Unit = Sales Price per Unit Variable Cost per Unit
= $20 $5
= $15
Break-Even Volume (#) = $30,000 / $15
= 2,000 mousetraps
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
$30,000.
Answer:
Break-Even Revenue ($) = Fixed Costs ($) / Contribution Margin (%)
Contribution Margin (%) = Contribution per Unit / Selling Price per Unit
Contribution per Unit ($) = Price per Unit Variable Cost per Unit
= $40 - $10
= $30
Contribution Margin (%) = $30 / $40 * 100
= 75%
Break-Even Revenue ($) = $30,000 / 75%
= $40,000
-OR-
Break-Even Revenue ($) = Break-Even Volume (#) * Price per Unit ($)
Break-Even Volume (#) = Fixed Costs ($) / Contribution per Unit ($)
Contribution per Unit = Sales Price per Unit Variable Cost per Unit
= $40 $10
= $30
Break-Even Volume (#) = $30,000 / $30
= 1,000 units
Break-Even Revenue ($) = 1,000 * $40
= $40,000
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