Consider the following income statement and answer the questions that follow:

Sales (100 units) $200
Variable costs ($.80 ea) 80
Fixed Costs 20
EBIT 100
Interest Expense 30
EBT 70
Income tax 24
Net Income 46

a. What is the firm’s Breakeven Point in units?
Draw a breakeven chart for this firm.

17

Consider the following income statement and answer the question that follows: Sales (100 units)..............$200 Variable costs ($.20 ea)......20 Fixed Costs.......................80 EBIT................................100 Interest Expense................30 EBT.................................70 Income tax.......................24 Net Income.......................46 What is the firm’s Breakeven Point in units?

To calculate the firm's breakeven point in units, we need to find the point at which the firm's net income is zero. This occurs when total revenue equals total costs.

The total cost is the sum of fixed costs and variable costs. In this case, the fixed costs are $20 and the variable costs per unit are $0.80. Since the selling price per unit is $2.00, the contribution margin per unit is $2.00 - $0.80 = $1.20.

To calculate the breakeven point in units, divide the fixed costs by the contribution margin per unit:

Breakeven Point (in units) = Fixed Costs / Contribution Margin per unit
Breakeven Point (in units) = $20 / $1.20
Breakeven Point (in units) ≈ 16.67

Therefore, the firm's breakeven point in units is approximately 16.67 units.

To draw a breakeven chart, you can plot the total costs and total revenue at various levels of production. The breakeven point will be the intersection of the total costs and total revenue lines.

Here's an example of how the breakeven chart for this firm would look:

Production (in units) | Total Revenue | Total Costs
0 | $0 | $20
10 | $20 | $28
20 | $40 | $36
30 | $60 | $44
40 | $80 | $52
50 | $100 | $60
60 | $120 | $68

As you can see, at the breakeven point of approximately 16.67 units, the total revenue and total costs intersect, resulting in zero net income.