Calculating breakeven when the unit price is given is not difficult. It does seem harder when there is no unit price. In this case, assume that the unit selling price is $1, as in these two example below from the Chapter 6 quiz:
2.
The Frogface Bookstore has $105,000 of sales, variable costs of $39,550 and
fixed costs of $32,350. What would their sales have to be to break even?
Guided solution: no unit price is given in
the question, so assume that it is $1. The contribution of their sales is then
105,000 – 39,550 = 65450. As a share of their total sales, this is
65450/105,000 = 0.62. This means that for every dollar in sales that they get,
62 cents ‘contributes’ towards paying off their fixed costs. To find how many
sales of $1 they need, divide the fixed cost by the contribution: 32350/0.62 =
52178 (rounded up).
4.
Monk Foods has compiled these estimates for operations:
Sales 865,000
Fixed costs 252,100
Total Variable Cost 597,250
a. What's
the contribution rate?
(865,000 – 597,250)/865,000 = 267750/865000=0.31
b. Break
even point in sales dollars?
Again, assume that the unit selling price
is $1. Then how many sales at $1 each do they need to get the fixed costs of
$252,1000? It is $252,100/0.31 = $813226.
c. Break
even point in units?
Because we specified that the unit selling
price would be one dollar, then the number of units we need to sell is the same
as the sales dollar amount, or 813,226.
