A firm has fixed costs of KSh 240,000 per month. Each unit sells at KSh 100 and has a variable cost of KSh 60. What is the break-even output in units?
Answer and explanation
Correct answer: A. 6,000 units
- Step 1: Contribution per unit = 100 - 60 = 40. Step 2. Break-even = fixed costs / contribution = 240,000 / 40 = 6,000 units. Answer: 6,000 units. Why not the others: 2,400 units: That divides by the selling price and ignores variable costs. 4,000 units: That divides by the variable cost, not the contribution. 1,500 units: That adds the price and the variable cost.
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