Break-Even Point in Units
Chillmax Company plans to sell 3,500 pairs of shoes at $60 each in the coming year. Unit variable cost is $21 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $78,000 (includes fixed factory overhead and fixed selling and administrative expense).
1. Calculate the break-even pairs of shoes.
At the break-even point, operating income equals $0. The break-even point tells managers how many units must be sold to cover all costs. Once more than the break-even units are sold, the company begins to earn a profit. So to get the break-even units using the operating income statement, we set operating income to zero, and then solve for the number of units.
|Break-Even Units||=||Total Fixed Cost|
|(Price ? Variable cost per unit)|
Review the "How to Calculate the Break-Even Point in Units" example in your text.
2. Check your answer by preparing a contribution margin income statement based on the break-even units. Enter all amounts as a positive number.
|Sales||$fill in the blank 28df3df7602bfe9_1||blank||blank|
|Total variable cost||fill in the blank 28df3df7602bfe9_2||blank||blank|
|Total contribution margin||$fill in the blank 28df3df7602bfe9_3||blank||blank|
|Total fixed cost||fill in the blank 28df3df7602bfe9_4|
|Operating income||$fill in the blank 28df3df7602bfe9_5||blank||blank|