You own a small manufacturing business that produces widgets

Finance Oct 15, 2020

You own a small manufacturing business that produces widgets. You have spent $600,000 acquiring the fixed assets you need to produce widgets. Each widget costs you $20 to make and they sell for $65 each, so your variable cost is 30.8% of the overall revenue.

At your current level of operating leverage, how many widgets must you sell to break even?

Expert Solution

Computation of the break even point in units:-

Contribution margin per unit = Selling price per unit - Variable cost per unit

= $65 - $20

= $45

Break even point in units = Fixed cost / Contribution margin per unit

= $600,000 / $45

= 13,333.33 widgets Or 13,333 widgets

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