Jesse, Inc., located in Mesa, Arizona, manufactures high-end baby chairs. The firm’s cost accountant,
Lisa, has been assigned by the CEO to determine how many baby chairs Jesse,
Inc., needs to make and sell in order to break even. She is given the following data:
Baby chair sales price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15
Variable cost per baby chair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Production worker salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,350
Determine how many baby chairs Jesse, Inc., needs to make and sell in order to break even.
To determine how many baby chairs Jesse, Inc. needs to make and sell in order to break even, we need to calculate the breakeven point. The breakeven point is the point at which a company's total revenue equals its total costs.
First, let's calculate the total fixed costs. In this case, the only fixed cost provided is the production worker salary, which is $1,350.
Next, let's calculate the contribution margin per unit. The contribution margin is the difference between the sales price and the variable cost per unit. In this case, the sales price is $15 and the variable cost per baby chair is $9, so the contribution margin per unit is $15 - $9 = $6.
To calculate the breakeven point, we can use the following formula:
Breakeven Point (in units) = Fixed costs / Contribution margin per unit
Plugging in the values we have, the breakeven point is:
Breakeven Point = $1,350 / $6 = 225 baby chairs
Therefore, Jesse, Inc. needs to make and sell 225 baby chairs in order to break even.