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Question:
Selling price per unit = $60; Total absorption costs per unit = $50; marginal cost per unit = $40. Budgeted production = 1,500 units.
Answer:
Contribution per unit = $50 – $40 = $10. Budgeted fixed costs = $10 x 2,000 (i don’t understand where this 2,000 came from, please help!) = $20,000
BEP = 20,000/20 = 1,000 units.
So output could fall from budgeted 1,500 to 1,000 and just break even.
Margin of safety = 500/1,500 = 33.3%
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