What component of the profit equation should be set equal to zero to find the breakeven point?

Total sales revenue

Total variable costs

Total fixed costs

Profit

Profit

The break-even point is the point where profit is zero.

Which of the following statements is not correct about the methods managers use to model the
relationship between revenues, costs, profit, and volume?

Each method provides a different way to express the CVP relationships, yet answers the same basic
question.

Choice of method depends, in part, on personal preference.

Choice of method depends, in part, on the available information.

Each method yields a different final answer to be used in analysis.

Each method yields a different final answer to be used in analysis.

The method a manager uses to model the relationship between revenues, costs, profit, and volume yield
the same final answer (not a different final answer) as long as managers have complete information.
The profit equation is:

(Unit price × Q) - (Unit variable costs × Q) - Total fixed costs = Profit

(Unit price × Q) - (Unit variable costs × Q) + Total fixed costs = Profit

(Unit price - Unit variable costs - Total fixed costs) × Q = Profit

(Unit price × Q) + (Unit variable costs × Q) + Total fixed costs = Profit

(Unit price × Q) - (Unit variable costs × Q) - Total fixed costs = Profit

The formula for profit is sales price per unit times number of units sold, less variable costs per unit times
number of units, less fixed costs.

The formula for break-even point in terms of units is:

Total fixed costs/Unit contribution margin

The formula for break-even point in terms of sales dollars is:

Total variable costs/Contribution margin ratio

Total fixed costs/Contribution margin ratio

Total fixed costs/Unit contribution margin

Total variable costs/Total fixed costs

Total fixed costs/Contribution margin ratio

Mustang Corp. has a selling price of $15, variable costs of $10 per unit, and fixed costs of $35,000. How
many units must be sold to break-even?

7,000

Calculate the break-even point in units by dividing fixed costs by the contribution margin per unit.
$35,000/($15 - $10) = 7,000

Thunder Corp. has a selling price of $25 per unit, variable costs of $20 per unit, and fixed costs of
$35,000. How many units must be sold to break even?

7,000

Calculate the break-even point by dividing fixed costs by the contribution margin. $35,000/($25 - $20) =
7,000

Maggie Corp. has a selling price of $20 per unit, variable costs of $10 per unit, and fixed costs of
$140,000. How many units must be sold to break even?

14,000

Calculate break-even point in units by dividing fixed costs by the contribution margin per unit. $140,000/
($20 - $10) = 14,000

Quail, Inc., has a contribution margin of 40% and fixed costs of $130,000. What is the break-even point
in sales dollars?

$325,000

Calculate the break-even point in sales dollars by dividing fixed costs by the contribution margin ratio.
$130,000/0.40 = $325,000

Allen, Inc., has a contribution margin of 40% and fixed costs of $250,000. What is the break-even point
in sales dollars?

$625,000
Calculate break-even point by dividing fixed costs by the contribution margin ratio. $250,000/0.40 =
$625,000

Jasper Corp. has a selling price of $30, and variable costs of $20 per unit. When 12,000 units are sold,
profits equaled $70,000. How many units must be sold to break-even?

5,000

Fixed costs are [($30 - $20) × 12,000] - $70,000 = $50,000. Break-even point is $50,000/($30 - $20) =
5,000.

At a level of 20,000 units sold, Gail Corp. has sales of $400,000, a contribution margin ratio of 40%, and a
profit of $40,000. What is the break-even point in units?

15,000

Fixed costs are ($400,000 × 40%) - $40,000 = $120,000. Break-even point is $120,000/0.40 = $300,000 in
sales, and $300,000/$20 = 15,000 in units.

Last month Peggy Company had a $30,000 profit on sales of $250,000. Fixed costs are $60,000 a month.
What sales revenue is needed for Peggy to break even?

$166,667

Contribution margin ratio is ($30,000 + $60,000)/$250,000 = 36%. Break-even point is $60,000/.36 =

$166,667.

Last month Carlos Company had a $60,000 profit on sales of $300,000. Fixed costs are $120,000 a
month. What sales revenue is needed for Carlos to break even?

$200,000

Contribution margin ratio is ($60,000 + $120,000)/$300,000 = 60%. Break-even point in sales revenue is
$120,000/0.60 = $200,000.
Skyline Corp. has a selling price of $25 per unit, variable costs of $20 per unit, and fixed costs of $25,000.
What sales revenue is needed to break-even?

$125,000

Break-even point in units is $25,000/($25 - $20) = 5,000. Revenue = 5,000 × $25 = $125,000.
Alternatively, break-even point is fixed costs divided by contribution margin ratio. $25,000/($5/$25 or
20%) = $125,000

Dancer Corp. has a selling price of $20 per unit, and variable costs of $10 per unit. When 12,000 units
are sold, profits equaled $35,000. How many units must be sold to break-even?

8,500

Fixed costs are [($20 - $10) × 12,000] - $35,000 = $85,000. Break-even point is $85,000/($20 - $10) =
8,500.

Belle Corp. has a selling price of $50 per unit, variable costs of $40 per unit, and fixed costs of $100,000.
What sales revenue is needed to break-even?

$500,000

Break-even point in units is $100,000/($50 - $40) = 10,000. Revenue = 10,000 × $50 = $500,000.
Alternatively, break-even point in sales dollars is fixed costs divided by contribution margin ratio.
($100,000/($10/$50) = $500,000)

Virgil Corp. has a selling price of $30 per unit, and variable costs of $20 per unit. When 12,000 units are
sold, profits equaled $55,000. How many units must be sold to break-even?

6,500

Fixed costs are [($30 - $20) × 12,000] - $55,000 = $65,000. Break-even point is $65,000/($30 - $20) =
6,500 units.

Last month Dexter Company had a $15,000 loss on sales of $150,000. Fixed costs are $60,000 a month.
By how much do sales have to increase for Dexter to break even?
$50,000

Contribution margin ratio is ($60,000 - $15,000)/$150,000 = 30%. Break-even sales is $60,000/0.30 =

$200,000. Sales must increase $200,000 - $150,000 = $50,000. Current sales are 150,000 and break even
sales are $200,000, so sales must increase by $50,000 in order for the company to break even.

Last month Empire Company had a $30,000 profit on sales of $250,000. Fixed costs are $60,000 a
month. By how much would sales be able to decrease for Empire to still break even?

$83,333

Contribution margin ratio is ($30,000 + $60,000)/$250,000 = 36%. Break-even sales is $60,000/0.36 =

$166,667. Sales would be able to decrease by $83,333. ($250,000 - $166,667 = $83,333)

Last month Angus Company had a $30,000 loss on sales of $250,000. Fixed costs are $60,000 a month.
What sales revenue is needed for Angus to break even?

$500,000

Contribution margin ratio is ($60,000 - $30,000)/$250,000 = 12%. Break-even sales is $60,000/0.12 =

$500,000.

Last month Stagecoach Company had a $60,000 loss on sales of $300,000. Fixed costs are $120,000 a
month. What sales revenue is needed for Stagecoach to break even?

$600,000

Contribution margin ratio is ($120,000 - $60,000)/$300,000 = 20%. Break-even sales in sales dollars is
fixed costs divided by the contribution margin ratio. ($120,000/0.20 = $600,000) Derive fixed costs by
working backwards on an income statement.

The formula for target units is:

(Total fixed costs + Target profit)/Unit contribution margin