Use the Information Below to Answer the Following Question(s)

question 22

Multiple Choice

Use the information below to answer the following question(s) .
A small automotive parts manufacturer is evaluating opening a new manufacturing plant for assembly of its battery chargers line.The location being considered has a monthly fixed cost of $42,000 and a variable cost of $3 per charger.Chargers sell for $ 7 each.
-The other option (in addition to the option of opening a new manufacturing plant) being considered is subcontracting the work to an external vendor.This option has a monthly fixed cost of $6,000 and a variable cost of $5 per charger.Chargers continue to sell for $7 each.What is the break-even point for the subcontracting option in units per month?

• A)6,000
• B)3,000
• C)10,000
• D)7,500

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Definitions:

Contribution Margin Ratio

The percentage of each sales dollar that contributes to covering fixed costs and generating profit.

Break-Even Point

The sales level at which total revenues equal total costs, resulting in neither profit nor loss.

Fixed Costs

Costs that do not change with the level of production or sales over a certain range and period, such as rent, salaries, and insurance premiums.

Unit Contribution Margin

The amount by which the selling price of a unit exceeds its variable costs, contributing to covering fixed costs and generating profit.