If fixed costs are 50,000, selling price per unit is 25, and variable cost per unit is 15, what is the break-even quantity?

• A. 5,000
• B. 2,500
• C. 10,000
• D. 7,500

Answer: (A)

You determine break-even by using the contribution per unit to cover fixed costs. The contribution per unit is the amount each unit contributes to fixed costs after variable costs are paid: 25 selling price minus 15 variable cost equals 10 per unit. To cover fixed costs of 50,000, you divide by the contribution per unit: 50,000 divided by 10 equals 5,000 units. At 5,000 units, total revenue is 5,000 × 25 = 125,000; total variable costs are 5,000 × 15 = 75,000; the remaining 50,000 exactly covers fixed costs, so profit is zero. Selling more than 5,000 units yields a profit, while selling fewer yields a loss. The break-even quantity is 5,000 units.