Brief Exercise 5-8 Cullumber Company has a unit selling price of $630, variable costs per unit of $300, and fixed costs of $327,030. Compute the break-even point in units using (a) the mathematical equation and (b) unit contribution margin.

(a)

Mathematical Equation for break-even

F = QP - QV

Where

F = fixed cost

Q = Break-even quantity

P = Selling price

V = Variable cost

F = Q ( P - V )

Q = F / ( P - V )

Q = $327,030 / ( $630 - $300 )

Q = $327,030 / $330

Q = 991 units

(b)

Contribution Margin = Price per unit - Variable cost per unit

Contribution Margin = $630 - $300 = $330

Break-even Point in Units = Fixed Cost / Contribution margin per unit

Break-even Point in Units = $327,030 / $330 = 991 units

Explanation:

Mathematical equation use the the break-even equation which represent the behavior of each element towards the break-even point.

Contribution per unit method use the contribution of each unit to calculate the break-even point.

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