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Break-Even Analysis Managerial Finance

Ensco Lighting Company has fixed costs of $100,000, sells its units for $28, and has variable costs of $15.50 per unit.

a. Compute the break-even point.
b. Ms. Watts comes up with a new plan to cut fixed costs to $75,000. However,
more labor will now be required, which will increase variable costs per unit
to $17. The sales price will remain at $28. What is the new break-even point?
c. Under the new plan, what is likely to happen to profitability at very high
volume levels (compared to the old plan)?

Solution Preview

Break-even analysis Managerial Finance I
Ensco Lighting Company has fixed costs of $100,000, sells its units for $28, and has variable costs of $15.50 per unit.

a. Compute the break-even point.

Find the contribution margin per unit.

Contribution margin per unit = Unit price - Variable cost per unit
= 28 - 15.50
= 12.50 per ...

Solution Summary

This solution is comprised of a detailed explanation to compute the break-even point.

$2.19