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RD
RD, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 8784
Experience:  MBA, CPA
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Senbet Ventures is considering starting a new company to produce

Customer Question

Senbet Ventures is considering starting a new company to produce stereos. The sales price would be set at 1.5 times the variable cost per unit; the VC/unit is estimated to be $2.50; and fixed costs are estimated at $120,000. What sales volume would be required in order to break even, i.e., to have an EBIT of zero for the stereo business?
Submitted: 7 years ago.
Category: Finance
Expert:  RD replied 7 years ago.

Sales price is 1.5 times variable cost

 

So Sale price is 2.5*1.5 = 3.75

 

Less: Variable cost = $2.50

 

Contribution = $1.25

 

Break Even Sales (units) = Fixed cost/contribution per unit

 

=120,000/1.25

 

=96,000 units.