Jamaica Cane Products has a fixed cost of $10,000 this period. Its direct labor is $1.50 per unit, and material is $0.75 per unit. The selling price is $4.00 per unit. Calculate the break-even point in dollars and the amount of units needed to break-even.

Break-even point in dollars is the amount of sales required for the firm to achieve a zero profit, I mean such that total revenue is the same as the total costs.

The break-even point in dollars can be determined as the fixed costs divided by the contribution margin ratio

In the case, the fixed costs is $10,000 whereas the contribution margin ratio is the contribution as a percentage of the sales price

contribution=sales price-variable costs

sales price=$4.00

variable costs=material cost+ labor cost

variable costs=$1.50+$0.75

variable costs=$2.25

contribution=$4.00-$2.25

contribution=$1.75

contribution margin ratio=contribution/sales price

contribution margin ratio=$1.75/$4.00

contribution margin ratio=43.75%

Break-even point in dollars=fixed costs/contribution margin ratio

Break-even point in dollars=$10,000/43.75%

Break-even point in dollars=$22,857.14

Break-even point in units=Break-even point in dollars/sales price

Break-even point in units=$22,857.14/$4.00

Break-even point in units=5,714 units

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