With fixed costs of 5,000, a selling price of 50 per unit, and variable cost per unit of 30, how many units are required to break even?

• A. 100
• B. 300
• C. 400
• D. 250

Answer: (D)

Break-even analysis: determine how many units are needed so that total revenue just covers both fixed and variable costs. Each unit adds a contribution equal to price minus variable cost: 50 − 30 = 20. To cover fixed costs of 5,000, you need 5,000 / 20 = 250 units. At 250 units, revenue is 250 × 50 = 12,500, variable costs are 250 × 30 = 7,500, and fixed costs are 5,000, so total costs equal revenue and profit is zero. Fewer than 250 won’t cover fixed costs, while more than 250 will generate a profit (e.g., 300 units give 300 × 20 = 6,000 contribution, which exceeds fixed costs by 1,000). Hence 250 units are required to break even.