Calculating Financial Break-Even Point for Chartreuse Co.

What is the financial break-even point for Chartreuse Co.?

Given the data on fixed costs, variable costs, sales price per unit, and other relevant information, how many units does Chartreuse Co. need to sell in order to cover all costs and achieve zero profit?

Answer:

The financial break-even point for Chartreuse Co. is approximately 3,609.78 units.

Chartreuse Co. has purchased a new machine to produce its High Flight line of shoes. The machine has an economic life of six years with no salvage value. The machine costs $696,000, and the sales price per pair of shoes is $61. The variable cost per unit is $15, and fixed costs attributed to the machine are $166,000 per year.

To calculate the financial break-even point, we need to consider the fixed costs, variable costs, and contribution margin per unit. The contribution margin per unit is calculated by subtracting the variable cost per unit from the sales price per unit.

In this scenario, the fixed costs are $166,000 per year, and the variable cost per unit is $15. The sales price per unit is $61, resulting in a contribution margin per unit of $46 ($61 - $15).

To find the financial break-even point, we divide the fixed costs by the contribution margin per unit. This calculation gives us the number of units that need to be sold to cover the fixed costs and achieve zero profit.

Financial break-even units = Fixed costs / Contribution margin per unit

Plugging in the values, we have:

Financial break-even units = $166,000 / $46

Calculating this, we find that the financial break-even point is approximately 3,609.78 units. Therefore, Chartreuse Co. needs to sell approximately 3,610 units of its High Flight shoes to cover all costs and achieve zero profit.

By reaching this financial break-even point, Chartreuse Co. can ensure that it covers all its costs and starts making a profit once sales exceed this quantity of units.