Harvest Inc. produces and sells a single product. The selling price of the product is $200.00 per unit and its variable cost is $80.00 per unit. The fixed expense is $300,000 per month.

The break-even in monthly unit sales is closest to:

a) 2,583 b) 3,750 c) 1,500 d) 2,500

d) 2,500.

Explanation:

Break-even can be defined in many ways. Below given are some of the definitions:

- A point at which there is neither Profit nor Loss.

- Sales = Total Costs.

- Contribution Margin = Fixed Costs

The formula used to calculate the Break-even sales in Quantity is:

                      x = Fixed Cost / Contribution Margin Per Unit

where

x = Break-even Quantity

Contribution Margin Per Unit = Selling Price per Unit - Variable Cost per Unit

In this case, the contribution margin per unit is 200 - 80 = $120.

Put the values in the formula and you will get:

x = 300,000 / 120 = 2,500.

Thanks!

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