Question

Refer to the information in QS 19-16. The company sells its product for \(50 per unit. Due to new regulations, the company must now incur \)2 per unit of hazardous waste disposal costs and $8,500 per year of fixed hazardous waste disposal costs. Compute the company’s break-even point (in units), including hazardous waste disposal costs.

Short answer

The break-even point of the company is 1,500 units.

Step-by-step solution

Meaning of Break-Even Point

In business terms, the break-even point refers to the stage where a business entity does not earn profits or losses. At this stage, the revenues and expenses of the business become equal, and management makes various strategies based on a break-even point.

Computation of break-even point 

$\begin{array}{rcl}\mathbf{\text{Break-evenpoint(inunits)}}& \mathbf{=}& \frac{\mathbf{\text{Fixedcost}}}{\mathbf{\text{Contributionmarginperunit}}}\\ & \mathbf{=}& \frac{\mathbf{\$}\mathbf{58}\mathbf{,}\mathbf{500}}{\mathbf{\$}\mathbf{39}}\\ & \mathbf{=}& \mathbf{1}\mathbf{,}\mathbf{500}\mathbf{}\mathbf{\text{units}}\end{array}$

Working Note:

Computation of fixed cost:

$\begin{array}{rcl}\mathbf{\text{Totalfixedcost}}& \mathbf{=}& \mathbf{\text{Fixedoverhead}}\mathbf{+}\mathbf{\text{Additionalcostfordisposal}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{50}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{8}\mathbf{,}\mathbf{500}\\ & \mathbf{=}& \mathbf{\$}\mathbf{58}\mathbf{,}\mathbf{500}\end{array}$