How to interpret the breakeven point in units?
The formula for calculating breakeven point in units is to take total fixed costs and divide by contribution margin per unit. Contribution margin per unit is calculated as revenue per unit minus variable costs per unit.
The output of this formula will tell the company exactly how many units they need to sell to cover their fixed costs. If they end up selling more units, they will generate a profit, and if they sell less units, they will incur a loss. For example, if the breakeven point in units is 100 units, and the company will sell more than 100 units, they will generate a profit. If they sell less than 100 units, the company would generate a loss.
You might also be interested in...
How to calculate cash to accrual adjustment for deferred revenue?
Deferred revenue (liability) will be increased when the company collects cash from customers related to revenue that cannot be recognized (i.e., unearned as performance obligations have not been satisfied). Deferred revenue will be decreased when the company recognizes revenues that was previously categorized as unearned revenue. On the exam, you could be asked for the […]
The Benefits of Visual Learning for the CPA Exam
If you are planning to sit for the CPA exam, then you may have already read up on how there are four parts of the exam, including auditing and attestation, business environment and concepts, financial accounting and reporting, and regulation. What you may not know, however, is that there are actually ways to learn these […]
What is target costing?
Target costing is a system in which a company plans in advance the price points, product costs, and margins that it would like to use to achieve a new product. This concept will use the selling price of the product in order to determine the production of the cost that is required to enter the […]