Detailed Answer
Answer (B) is correct. The BEP in units is equal to fixed cost divided by the difference between unit selling price and unit variable cost (the unit contribution margin). At less than 75,000 units, fixed costs are $800,000 and UCM is $10 [$25 – ($25 × 60%)]. At this UCM, 80,000 units ($800,000 ÷ $10) must be sold, but this volume is not within the relevant range. At any production level greater than 75,000 units, total fixed costs are $1,200,000 but there are two UCM layers. The first 75,000 units sold will produce a contribution margin of $750,000 (75,000 × $10). Hence, another $450,000 ($1,200,000 – $750,000) must be contributed. The UCM is $12.50 [$25 – ($25 × 50%)] for units in excess of 75,000, and 36,000 ($450,000 ÷ $12.50) additional units must be sold. Total unit sales at the BEP are 111,000 ( 75,000+36,000 ).