XYZ Company is a retailer of widgets. XYZ pays $4.10 for each widget and sells t

Question

XYZ Company is a retailer of widgets. XYZ pays $4.10 for each widget and sells them for $8.50. Monthly fixed costs are $31,240. The widget cost is the only variable cost.

a.

What is the contribution margin per unit?(Round your answer to 2 decimal places. Omit "$" sign in your response.)

How many units will XYZ need to sell to earn target profit of $29,480?(Do not round intermediate calculations.)

XYZ Company is a retailer of widgets. XYZ pays $4.10 for each widget and sells them for $8.50. Monthly fixed costs are $31,240. The widget cost is the only variable cost.

Explanation / Answer

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Calculating a break-even point in business determines the point during a specific period of time at which a company shows neither profit nor loss. The formula used to calculate a BEP in Units is (BEP) in Units = TFC / (SPU - VCU), or the total fixed costs (TFC) divided by the difference between the sales price per unit (SPU) and the variable costs per unit (VCU). The result from the latter (SPU - VCU) is called the contribution margin per unit. Total fixed costs (TFC) refers to all business costs, such as rent, equipment leases, office salaries, property taxes, loan payments and insurance that do not vary based upon sales. Sales price per unit (SPU) is the average price at which a unit is sold, and the variable cost per unit (VCU) is the total cost of all variables, such as raw material, direct labor and delivery costs that contribute to the making of a single unit

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