Oradell Company sells its single product at a price of $60 per unit and incurs the following variable costs per unit of product:
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Oradell Company sells its single product at a price of $60 per unit and incurs the following variable costs per unit of product:

Direct material

16

Direct labor

12

Manufacturing overhead

7

Variable manufacturing costs

35

Selling expenses

5

Total variable costs

40

Oradell’s annual fixed costs are $880,000, and Oradell is subject to a 30% income tax rate.
The number of units of product that Oradell Company must sell annually to break even is

22,000 units.
44,000 units.
35,200 units.
30,800 units.Show Result

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

Answer (B) is correct. The breakeven point in units equals total fixed costs divided by the contribution margin per unit. At a selling price of $60 per unit and with variable costs of $40 per unit, the unit contribution margin is $20. Thus, the breakeven point is 44,000 units ($880,000 ÷ $20).