Sandhill, Inc. has a unit selling price of $920, variable cost per unit of $510, and total fixed costs of $280,850. Compute the break-even sales units and sales dollars.

(A) 685 UNITS

(B) 630,200 DOLLARS

Explanation:

Variable cost + Fixed cost  =  Total Cost

The break-even sales units would be the number of units Sandhill Inc. will sell in order to break even; that is, in order for their total cost to equal their total revenue.

If break-even point is the point where TR = TC then it is the same point at which PROFIT = 0

Recall that profit is the positive difference between total revenue and total cost. The negative difference (that is when TR < TC) is called loss.

Let X be = the break-even quantity or number of units, then we have

920x = 510x + 280850

Remember that VC varies or increases with the number of units produced, and so it has the x attached to it in this equation. FC on the other hand remains the same, regardless of the number of units produced.

So the left hand side of the equation has the total revenue, while the right hand side of the equation has the total cost.

Solving algebraically.

920x - 510x  =  280850

410x  =  280850

x =  280850 ÷ 410  =  685

ANSWER 1

The break-even sales units is 685 units.

The second computation is Sales in Dollars; at break-even sales units.

This revenue or sales is derived thus: Price per unit x Number of units

$920 x 685units  = $630,200

ANSWER 2

The break-even total sales or total revenue is $630,200

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