managerial accounting help -- for the life of me, I can't figure it out-- how can I find the break even point [in units]?

Question

this is a company selling snowmobiles:

fixed expenses: $615,000
sales price of each product: $12,500
variable costs: $5360

1. estimate how many snowmobiles need to be sold to breakeven

^ This is where I am having trouble. I know the equations.. but I can't seem to figure out how to find variable cost per unit without knowing the amount of units produced in that time frame.
My professor told me that if I know selling price, variable costs, and fixed costs, than I should be able to solve for the quantity.

Help.
Thank you. Much appreciated.

Magicgolfermachine · Accepted Answer

The variable costs of $5360 is the variable cost per unit.

In order to find the number of units to break even you:
1.)   Take your Total Fixed Costs + Target Income ($0)
2.)   Find your Contribution Margin Per Unit by subtracting your Variable Cost from Selling Price SP-VC=CMx
3.)   Divide the Total Fixed Costs by the Contribution Margin Per Unit to find the number of units to BE.

Total Fixed Costs + Target Profit   ..............  $615,000 + $0  ............ $615,000
_________________________________     =    ___________________     =   ____________    =   83.13 Units to BE
Selling Price p.u. - Variable Cost p.u.........  $12,500 - $5,360 ............$7,140

olliver · Answer

The gross margin on the product is 12500-5360=7140

The gross margin percentage =7140/12500= 57.12%

Break even revenue = Fixed costs/gross margin % = 615000/57.12 = 1076681

Since each unit sells at 12500, the number of units to break even must be

Break even revenue/unit price = 1076681/12500=86.13 (87 units)

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managerial accounting help -- for the life of me, I can't figure it out-- how can I find the break even point [in units]?

2 Answers