If fixed costs are $50,000, the price per unit is $20, and the variable cost per unit is $12, what is the break-even quantity (units)?

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Multiple Choice

If fixed costs are $50,000, the price per unit is $20, and the variable cost per unit is $12, what is the break-even quantity (units)?

The key idea is that break-even occurs when total revenue just covers total costs, which happens when fixed costs are recovered by the contribution per unit (price minus variable cost). Here the contribution per unit is 20 − 12 = 8. With fixed costs of 50,000, the break-even quantity is 50,000 ÷ 8 = 6,250 units. Verifying: revenue = 6,250 × 20 = 125,000, variable costs = 6,250 × 12 = 75,000, total costs = 125,000, so profit is zero.

The key idea is that break-even occurs when total revenue just covers total costs, which happens when fixed costs are recovered by the contribution per unit (price minus variable cost). Here the contribution per unit is 20 − 12 = 8. With fixed costs of 50,000, the break-even quantity is 50,000 ÷ 8 = 6,250 units. Verifying: revenue = 6,250 × 20 = 125,000, variable costs = 6,250 × 12 = 75,000, total costs = 125,000, so profit is zero.

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