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    Computing Break-Even Units and Sales Dollars

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    AAA Auto Parts produces mufflers that sell for $75 each. Variable costs are $25, and fixed costs are $25,000.

    1. Compute the break-even point in units.
    2. Compute the break-even in sales.
    3. Find the sales (in units) needed for a before tax profit of $35,000. (Hint: look at the profit as a part of the fixed cost.)
    4. Using the information in Part c, find the sales (in units) for an after-tax profit of $35,000. Use a tax rate of 40 percent.

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    Solution Preview

    1. The break-even point in units=Fixed Costs/(Sales price/unit-Variable costs/unit). In this case, the break-even point in units=$25,000/($75-$25), or 500 units.

    2. You can use either of two ways to compute the break-even point in sales dollars. First, compute the break-even point in units and multiply by the unit selling price. In this ...

    Solution Summary

    This solution illustrates the computation of break-even sales in units and dollars using neat, step by step calculations.