Question

The Sterling Tire Company’s income statement for 20X1 is as follows:

STERLINE TIRE COMPANY Income Statement For the year ended December 31, 20X1
Sales (20,000 tires at \(60 each)	\)1,200,000
Less: variable costs (20,000 tires at \(30)	600,000
Less: fixed cost	400,000
Earnings before interest and taxes (EBIT)	\)200,000
Interest expenses	50,000
Earning before taxes (EBT)	\(150,000
Income tax expenses (30%)	45,000
Earning after taxe (EAT)	\)105,000

Given this income statement, compute the following:

d. Break even point in units.

Short answer

Break even point in units is 13,333.

Step-by-step solution

Income statement

Income statement is prepared by an organization to show the net income earned by the company. It shows the revenue, variable cost, fixed cost, finance cost, etc.

Break even point in units

$\begin{array}{rcl}\mathrm{Break}\mathrm{even}\mathrm{point}& =& \frac{\mathrm{Fixed}\mathrm{cost}}{\left(\mathrm{Revenue}\mathrm{per}\mathrm{unit}-\mathrm{Variable}\mathrm{cost}\mathrm{per}\mathrm{unit}\right)}\\ & =& \frac{\$400,000}{\left(\$60-\$30\right)}\\ & =& 13,333\mathrm{units}\end{array}$