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Tim Taylor has written a self improvement book that has the following cost characteristics: Selling Price $16
Tim Taylor has written a self improvement book that has the following cost characteristics:
Selling Price $16.00 per book
Variable cost per unit:
Production $4.00
Selling & administrative 2.00
Fixed costs:
Production $97,200 per year
Selling & administrative 20,400 per year
How many units must be sold to break-even?
Expert Solution
Computation of the number of units to be sold for break even:-
Variable cost per unit = Production cost + Selling & administrative cost
= $4 + $2
= $6
Contribution margin per unit = Selling price per unit - Variable cost per unit
= $16 - $6
= $10
Fixed cost = Production cost + Selling & administrative cost
= $97,200 + $20,400
= $117,600
Break even point in units = Fixed cost / Contribution margin per unit
= $117,600 / $10
= 11,760 books
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