Tanner Company’s most recent contribution format income statement is presented below:

Tanner Company's contribution income statement
Sales

$96,000

Variable expenses

57,600

Contribution margin

38,400

Fixed expense

43,200

Net operating loss

$(4,800)

The company sells its only product for $24 per unit. There were no beginning or ending inventories.

The company’s break-even point in units sold is:

Question

Tanner Company’s most recent contribution format income statement is presented below:

Tanner Company's contribution income statement
Sales

$96,000

Variable expenses

57,600

Contribution margin

38,400

Fixed expense

43,200

Net operating loss

$(4,800)

The company sells its only product for $24 per unit. There were no beginning or ending inventories.

The company’s break-even point in units sold is:

BlackTom AI · Accepted Answer

Contribution margin per unit equals sales price minus variable cost per unit, so find unit data first.

1. Relevant knowledge points and concepts
- Contribution margin (CM) = Sales − Variable expenses. CM per unit = Selling price per unit − Variable cost per unit.
- Break-even in units = Fixed expenses ÷ CM per unit.
- When no beginning/ending inventory, total sales divided by unit price gives units sold.

2. Step-by-step reasoning
- Determine current units sold from total sales and unit price.
- Compute variable cost per unit and CM per unit.
- Apply break-even formula using fixed expenses and CM per unit.

3. Calculations with intermediate steps
- Units sold currently = Total sales ÷ Price per unit = $96,000 ÷ $24 = 4,000 units.
- Variable cost per unit = Total variable expenses ÷ Units = $57,600 ÷ 4,000 = $14.40 per unit.
- Contribution margin per unit = Price − Variable cost = $24.00 − $14.40 = $9.60 per unit.
- Break-even units = Fixed expenses ÷ CM per unit = $43,200 ÷ $9.60.
- Compute: $43,200 ÷ $9.60 = 4,500 units.

4. Why the correct answer is correct
- At 4,500 units, total contribution = 4,500 × $9.60 = $43,200, which exactly covers fixed expenses, producing zero net operating income. That is the definition of break-even.

5. Why the other options are incorrect
- 4,000 units: this is current sales level; contribution (4,000 × $9.60 = $38,400) is $4,800 short of fixed costs, causing the reported loss.
- 4,800 units: yields contribution of 4,800 × $9.60 = $46,080, creating a profit of $2,880, so not break-even.
- 5,000 units: yields contribution of 5,000 × $9.60 = $48,000, producing a profit of $4,800, not break-even.

6. Conclusion
Therefore, the company’s break-even point in units is 4,500 units, which matches the provided answer.

Similar Questions

Which of the following conditions would cause the break-even point to increase?

If fixed costs are $750,000 and variable costs are 60% of sales, the break-even point in sales dollars is

If fixed costs are $250,000, the unit selling price is $125, and the unit variable costs are $73, the break-even sales in units (rounded to the nearest whole unit) is

EA 5 - What is the company’s break-even point in dollars?

EA 5 - What is the company’s break-even point in units?

(Please refer to the "It Ain't Just About Peanuts" handout.) Joe currently sells peanuts at $0.40 per bag. What is the minimum selling price at which Joe should continue selling peanuts?

If a company has fixed costs of $6,000 per month and their product that sells for $200 has a contribution margin ratio of 30%, how many units must they sell in order to break even?

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler