Question

Dream Threads Company sells hand-sewn shirts for $40 per shirt. It incurs monthly fixed costs of $7000. The contribution margin ratio is calculated to be 50%. What is the breakeven point in units? (Round your answer up to the nearest whole unit.)

Answer 1

350 units

Step-by-step explanation:

The break even point shows the earnings that the company has to generate to be able to cover all the expenses. The formula to calculate the break even point is:

Break even point= Fixed costs / contribution margin

Break even point= $7,000/0.50

Break even point= $14,000

Now, to determine the break even point in units you have to divide $14,000 by the sales price per unit:

$14,000/$40= 350 units

According to this, the break even point in units is 350.