What is a break-even point? The Catera Company makes and sells cotton candy machines. What is the break-even volume for Catera machines in units?
Catera Machines Financial Information
Salesperson salary$ 40,000
Advertising100,000
Research and development20,000
Production equipment20,000
Overhead allocation 20,000
Catera's selling price$600
Average variable cost$350
What will be an ideal response?
A break-even point is that level of units sold at a certain price at which no profit or loss is incurred. Break-even analysis determines what sales volume must be reached for a product before the company breaks even (total costs are equal to total revenue).
Using the break-even formula indicates that Catera must sell 800 cotton candy machines to break even.
Fixed cost contribution = selling price - average variable cost
FCC = $600 - $350 = $250
Break-even quantity = total fixed costs 
fixed cost contribution
BEQ = $200,000 
$250 = 800 units
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