Jason is interested in finding the breakeven point for a new pump it plans to produce. The price of the pump is $250 and the variable cost ratio is 50% of the price. Jason calculated that the fixed costs will be about $400,000. What is the breakeven point of operations?
To calculate the breakeven point, we need to determine how many units need to be sold to cover both the fixed costs and the variable costs.
First, let's calculate the variable cost per unit. The variable cost ratio is given as 50% of the price, which means the variable cost per unit is 50% of $250:
Variable cost per unit = 50% of $250 = $250 * 0.50 = $125.
Next, let's calculate the contribution margin per unit. The contribution margin is the difference between the selling price and the variable cost per unit:
Contribution margin per unit = Selling price - Variable cost per unit = $250 - $125 = $125.
Now, we can calculate the breakeven point by dividing the fixed costs by the contribution margin per unit:
Breakeven point (in units) = Fixed costs / Contribution margin per unit = $400,000 / $125 = 3200 units.
Therefore, Jason needs to sell 3200 units of the pump to reach the breakeven point in operations.