At a break-even point of 400 units sold,variable expenses were $4,000 and fixed expenses were $2,000.What will the 401^st unit sold contribute to operating income? A) $0. B) $5. C) $10. D) $15.

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Quizplus · Accepted Answer

At the break-even point, total revenue equals total expenses. The variable expense per unit is $4,000 / 400 units = $10 per unit. Since the company is at the break-even point, selling one more unit (the 401st unit) will contribute to operating income by the amount of the selling price minus the variable cost per unit. Given that the fixed expenses are already covered at the break-even point, the entire contribution margin of the 401st unit will go towards operating income. The contribution margin per unit is the selling price per unit minus the variable cost per unit. Since we are not given the selling price, we calculate the contribution to operating income by understanding that it must be above the variable cost to result in a profit. Given the options and knowing the variable cost is $10, the only logical contribution to operating income from selling one more unit beyond the break-even point is the amount over the variable cost, which is option B) $5, assuming the selling price per unit is $15 ($10 variable cost + $5 contribution = $15 selling price).

At a Break-Even Point of 400 Units Sold,variable Expenses Were