Break-Even Analysis Lombardi Company has a unit selling price of $400, variable costs per unit of $240, and fixed costs of $180,000. Compute the break-even point in units using (a) a mathematical equation and (b) unit contribution margin.

Question

Break-Even Analysis

Lombardi Company has a unit selling price of $400, variable costs per unit of $240, and fixed costs of $180,000. Compute the break-even point in units using (a) a mathematical equation and (b) unit contribution margin.

Accepted Answer

(a) The equation is $400Q − $240Q − $180,000 = $0; ($400Q − $240Q) = $180,000. The break-even point in units is 1,125. (b) The unit contribution margin is $160 ($400 − $240). The formula therefore is $180,000 ÷ $160, and the break-even point in units is 1,125.

ACTION PLAN
• Apply the profit equation: Sales − Variable costs − Fixed costs = Net income.
• Apply the break-even formula: Fixed costs ÷ Unit contribution margin = Break-even point in units.

Related exercise material: BE5.8, BE5.9, DO IT! 5.4, E5.8, E5.9, E5.10, E5.11, E5.12, and E5.13.

Question 5.DI.4: Break-Even Analysis Lombardi Company has a unit selling pric...

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