A firm has fixed costs of KSh 90,000 per month. Each unit sells at KSh 40 and has a variable cost of KSh 25. What is the break-even output in units?
Answer and explanation
Correct answer: D. 6,000 units
- Step 1: Contribution per unit = 40 - 25 = 15. Step 2. Break-even = fixed costs / contribution = 90,000 / 15 = 6,000 units. Answer: 6,000 units. Why not the others: 2,250 units: That divides by the selling price and ignores variable costs. 3,600 units: That divides by the variable cost, not the contribution. 1,384.62 units: That adds the price and the variable cost.
Practise more Break-even and cost analysis.
Free questions with an explanation for every one, and full timed KASNEB CPA Foundation Level (Kenya) mock tests.
More Break-even and cost analysis questions
- A firm has fixed costs of KSh 120,000 per month. Each unit sells at KSh 50 and has a variable cost of KSh 30. What is the break-even output…
- 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…
- A firm has fixed costs of KSh 360,000 per month. Each unit sells at KSh 200 and has a variable cost of KSh 140. What is the break-even outpu…
- A firm has fixed costs of KSh 150,000 per month. Each unit sells at KSh 80 and has a variable cost of KSh 50. What is the break-even output…
- A firm has fixed costs of KSh 180,000 per month. Each unit sells at KSh 90 and has a variable cost of KSh 60. What is the break-even output…
- Fixed costs are KSh 100,000, the selling price is KSh 50 per unit and variable cost is KSh 30 per unit. How many units must be sold to earn…