Use the following information for the next 3 questions.
Horton and Associates produces two products named BigBlast and LittleBlast. Last month 4,000 units of BigBlast and 1,000 units of the LittleBlast were produced and sold. Following are average prices and costs for last month: The production lines for both products are highly automated, so large changes in production cause very little change in total direct labor costs. Workers who are classified as direct labor monitor the production line and are permanent employees who regularly work 40 hours per week. All costs other than "corporate fixed costs" listed under each product line could be avoided if the product line were dropped.
-What is the breakeven sales volume (in units) for BigBlast? (In other words, what is the sales volume at which Horton should be financially indifferent between dropping and keeping BigBlast?)
A) 728 units
B) 2,545 units
C) 1,084 units
D) 790 units

Question

Use the following information for the next 3 questions.
Horton and Associates produces two products named BigBlast and LittleBlast. Last month 4,000 units of BigBlast and 1,000 units of the LittleBlast were produced and sold. Following are average prices and costs for last month:  The production lines for both products are highly automated, so large changes in production cause very little change in total direct labor costs. Workers who are classified as direct labor monitor the production line and are permanent employees who regularly work 40 hours per week. All costs other than "corporate fixed costs" listed under each product line could be avoided if the product line were dropped.
-What is the breakeven sales volume (in units) for BigBlast? (In other words, what is the sales volume at which Horton should be financially indifferent between dropping and keeping BigBlast?) 
A) 728 units 
B) 2,545 units 
C) 1,084 units 
D) 790 units

Quizplus · Accepted Answer

The breakeven sales volume is the sales volume at which the total revenue equals the total cost. In this case, the total revenue is equal to the sales price per unit multiplied by the sales volume, and the total cost is equal to the variable cost per unit multiplied by the sales volume plus the fixed cost. The breakeven sales volume is therefore equal to the fixed cost divided by the difference between the sales price per unit and the variable cost per unit. In this case, the fixed cost is $100,000, the sales price per unit is $200, and the variable cost per unit is $100. Therefore, the breakeven sales volume is $100,000 / ($200 - $100) = 728 units.

Use the Following Information for the Next 3 Questions