If fixed costs = $6,000, selling price = $10, and variable costs per unit = $5, what is the breakeven point in units and in dollar sales volume?
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Knowing the number of units necessary to break even is important in setting the price. If a product priced at $10 per unit has an average variable cost of $5 per unit, the contribution to fixed costs is $5. If total fixed costs are $6,000, the breakeven point in units is determined as follows:
breakeven point = fixed costs/per unit contribution to fixed costs
breakeven point = fixed costs/(price - variable costs)
breakeven point = $6,000/($10 - $5)
breakeven point = 1,200 units
To calculate the breakeven point in terms of dollar sales volume, the seller multiplies the breakeven point in units by the price per unit. In the preceding example, the breakeven point in terms of dollar sales volume is 1,200 (units) times $10, or $12,000.
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