Delfynn Dynamics Inc. reports the following financial information for the month: Revenues of $2.5 million, total variable costs of $1.25 million, total fixed costs of $1.0 million, 5,000 units sold, and a variable cost per unit of $250. Which of the following is correct?
A) Gross margin equals $250,000.
B) Break-even point equals 4,000 units.
C) Contribution margin equals $1.5 million.
D) Contribution margin equals $1.75 million.

Question

Quizplus · Accepted Answer

Since revenues equal $2.5 million and units sold equal 5,000, each item is sold at a price of $500. Variable costs per unit are $250, so the contribution margin per unit sold equals $250. The break-even point is the point at which sufficient units are sold to equal fixed costs. Fixed costs are $1.0 million. Therefore, the break-even point is $1,000,000 ÷ $250 = 4,000 units.