Break-even Point Practice Problems
XYZ Corporation needs to have some idea about how many units of the ABC product they need to sell, in order to break-even (make enough money to pay for their materials, labor and overhead costs--but not show any profit).
Knowing the break-even point for your product allows you to determine how many units have to be produced before you start to turn a profit.
Break-even managerial accounting practice problem:
Use the contribution margin method to determine the break-even point for XYZ Corp.'s total annual fixed expenses of $30,000 and a variable expense (per product unit) of $100, with each ABC product unit selling for $200.
Unit product selling price ($200) - unit product variable expense ($100) = unit contribution margin ($100).
Break-even formula: Fixed expenses / unit contribution margin = Break-even point.
Fixed expenses ($30,000) / unit contribution margin ($100) = Break-even point (300 ABC product units).
XYZ will begin to make profit after making and selling 300 units of ABC product.