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CIPS L3M3 Exam - Topic 4 Question 45 Discussion
Topic #: 4
The variable cost of a bottle of water is 25 cents. Selling price is $1, and fixed costs are one hundred thousand dollars. How many bottles of water must be sold to reach breakeven point?
The calculation which needs to be done is one hundred thousand (dollars) divided by the contribu-tion per bottle. The contribution per bottle is one dollar minus the variable cost - 25 cents. Thus the contribution is 75 cents. One hundred thousand divided by $0.75 = 133,333. Note the answer is in units - in response to the QUESTION NO : of how many bottles / units must be sold to break even.
For people who feel they have difficulty with calculations, just look at the possible answers. If the contribution is a bit less than a dollar, and the fixed costs are 100,000, we would expect the answer to be a number a little over 100,000 - one of the answers fits the bill, and this is the correct answer. So the QUESTION NO : may look complicated or difficult, but if you stay calm and think it through, it's not that difficult.
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