Question 13

3,000 widgets must be sold each month to break even.

To determine the break-even point, the company must cover its total fixed costs of $300,000 by the contribution margin from each widget sold, which is $50 ($100 selling price - $50 variable cost). This means that 3,000 widgets need to be sold to reach the break-even point.

A) 2,000

Selling 2,000 widgets would generate a total revenue of $200,000 (2,000 x $100), while the total variable costs would be $100,000 (2,000 x $50). The total fixed costs of $300,000 would not be covered, resulting in a loss of $100,000. Therefore, this option is incorrect.

B) 3,000

Selling 3,000 widgets generates a revenue of $300,000 (3,000 x $100) and incurs variable costs of $150,000 (3,000 x $50). The total contribution margin is $150,000, which exactly offsets the fixed costs of $300,000. Thus, this option is correct as it represents the break-even point.

C) 4,500

If 4,500 widgets are sold, total revenue would amount to $450,000 (4,500 x $100) and the variable costs would be $225,000 (4,500 x $50). Although this would cover the fixed costs, it exceeds the break-even point. Therefore, while it results in profit, it is not the correct answer for break-even.

D) 6,000

Selling 6,000 widgets results in a total revenue of $600,000 (6,000 x $100) and variable costs of $300,000 (6,000 x $50). This option also exceeds the break-even point, leading to a substantial profit. However, it does not represent the required sales volume to merely break even, making this option incorrect.

Conclusion

In conclusion, the only option that accurately reflects the number of widgets required to break even is 3,000. This is because it precisely balances the total fixed costs with the contribution margin derived from sales, while all other options either result in a loss or surpass the break-even threshold. Thus, Option B is definitively correct.