Future Business Leaders of America (FBLA) Marketing Practice Test

How many units must a company sell at a price of $1.80, variable costs of $1.07 per unit, and fixed costs of $10,200 to break even?

1. 13,973

2. 14,000

3. 13,500

4. 14,500

The correct answer is: 13,973

To determine the break-even point in units for a company, you can use the break-even formula, which is derived from the contribution margin approach. The contribution margin is calculated by subtracting the variable costs per unit from the selling price per unit. Once you have the contribution margin, you divide the total fixed costs by this amount to find the break-even quantity in units. 1. **Calculate the contribution margin per unit**: - Selling price per unit: $1.80 - Variable cost per unit: $1.07 - Contribution margin = Selling price - Variable costs - Contribution margin = $1.80 - $1.07 = $0.73 2. **Calculate the break-even point in units**: - Fixed costs: $10,200 - Break-even point (units) = Fixed costs / Contribution margin - Break-even point = $10,200 / $0.73 ≈ 13,973.97 Since we are dealing with whole units, we round this to 13,973 units. Therefore, selling 13,973 units at $1.80 each, with variable costs of $1.07, allows the company to cover its total