Break-even Point Calculation for UP Forklifts
What is the breakeven point in total units for UP Forklifts?
Given that UP Forklifts sells large forklifts for $80,000 per unit with variable costs of $26,000 per unit, and small forklifts for $60,000 per unit with variable costs of $12,000 per unit. The company's total fixed costs are $4,455,000 and typically sells one large forklift for every three smalls.
Answer:
Break-even point (units) = 90 units
Explanation:
Considering the information provided:
- Large forklift:
Selling price = $80,000 per unit
Unitary variable cost = $26,000 per unit.
- Small forklifts:
Selling price = $60,000 per unit
Unitary variable cost = $12,000 per unit.
Total fixed costs for the company are $4,455,000.
Sales proportion:
Large forklift = 0.25
Small forklift = 0.75
To calculate the break-even point in units, we need to use the following formula:
Break-even point (units) = Total fixed costs / Weighted average contribution margin
Weighted average contribution margin = (weighted average selling price - weighted average unitary variable cost)
Weighted average contribution margin = (0.25 * 80,000 + 0.75 * 60,000) - (0.25 * 26,000 + 0.75 * 12,000)
Weighted average contribution margin = 65,000 - 15,500 = 49,500
Break-even point (units) = 4,455,000 / 49,500
Break-even point (units) = 90 units