Wow Wireless produces and distributes two mobile devices. One is of extremely high quality, and the other is mid-range and more affordable. Information on these two items follows:
High-quality: Total fixed costs are $90,000, variable costs are $500 per unit, and unit selling price is $800.
Mid-range: Total fixed costs are $88,000, variable costs are $130 per unit, and unit selling price is $350. What is the break-even point in units for each device?
A) Break-even is 450 units for both items.
B) Break-even is 800 units for both items.
C) Break-even is 400 units for the high-quality device and 300 units for the mid-range device.
D) Break-even is 300 units for the high-quality device and 400 units for the mid-range device.

Question

Quizplus · Accepted Answer

High quality: Contribution margin per unit is equal to sales price per unit minus variable costs per unit, or $800 F1F1F1S1?F1F1F10 $500 = $300 per unit. Fixed costs of $90,000 ÷ contribution margin per unit of $300 = break-even in units of 300. Mid-range: Contribution margin per unit is equal to sales price per unit minus variable costs per unit, or $350 F1F1F1S1?F1F1F10 $130 = $220 per unit. Fixed costs of $88,000 ÷ Contribution margin per unit of $220 = Break-even in units of 400.

Wow Wireless Produces and Distributes Two Mobile Devices