Question

The Harding Company manufactures skates. The company’s income statement for 20X1 is as follows:

HARDING COMPANY Income Statement For the year ended December 31, 20X1
Sales (10,500 skates at \(60 each)	\)630,000
Less: variable costs (10,500 tires at \(25)	262,500
Less: fixed cost	200,000
Earnings before interest and taxes (EBIT)	\)167,500
Interest expenses	62,500
Earning before taxes (EBT)	\(105,000
Income tax expenses (30%)	31,500
Earning after taxe (EAT)	\)73,500

Given this income statement, compute the following:

d. Break even point in units.

Short answer

Break-even point in units is 5,714.

Step-by-step solution

Fixed cost

Fixed cost of the company remains fixed in amount every month irrespective of the sales or production volume. It is deducted from the gross revenue of the company while computing the income statement.

Break-even point in units

$\begin{array}{rcl}\mathrm{Break}\mathrm{even}\mathrm{point}& =& \frac{\mathrm{Fixed}\mathrm{cost}}{\left(\mathrm{Revenue}\mathrm{per}\mathrm{unit}-\mathrm{Variable}\mathrm{cost}\mathrm{per}\mathrm{unit}\right)}\\ & =& \frac{\$200,000}{\left(\$60-\$25\right)}\\ & =& 5,714\mathrm{units}\end{array}$