Fixed costs of 1,200; price per unit 30; variable cost per unit 25; how many units to break even?

• A. 240
• B. 320
• C. 120
• D. 600

Answer: (A)

Break-even happens when revenue just covers all costs. Each unit adds to fixed costs by the amount the sale contributes after variable costs are paid, i.e., the contribution per unit. Here the price is thirty dollars and the variable cost per unit is twenty-five dollars, so the contribution per unit is five dollars. To cover fixed costs of twelve hundred dollars, you need twelve hundred divided by five, which equals two hundred forty units. So the break-even quantity is two hundred forty units. If you sell that many, revenue and total costs are equal; selling fewer leads to a loss, selling more leads to profit.