Brief Exercise 18: Meriden Company Has A Unit Selling Price

Brief Exercise 18 8meriden Company Has A Unit Selling Price Of 780 V

Meriden Company has a unit selling price of $780, variable costs per unit of $390, and fixed costs of $256,230. Compute the break-even point in units using the mathematical equation.

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The primary goal of managerial accounting is to determine the level of sales necessary to cover all costs, achieving a break-even point, and then to reach desired profit levels. In this context, Meriden Company’s financial data enables us to calculate the break-even point in units, which is essential for decision-making and strategic planning.

The break-even point in units is calculated as the total fixed costs divided by the contribution margin per unit. The contribution margin per unit is obtained by subtracting variable costs per unit from the selling price per unit.

Given data:

  • Sales price per unit = $780
  • Variable costs per unit = $390
  • Fixed costs = $256,230

Calculate the contribution margin per unit:

Contribution margin per unit = Selling price per unit - Variable costs per unit = $780 - $390 = $390

Now, compute the break-even point in units:

Break-even units = Fixed costs / Contribution margin per unit = $256,230 / $390 ≈ 658.54 units

Since units cannot be sold in fractional amounts, rounding up, Meriden Company needs to sell at least 659 units to break even.

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