Breaking Down the Breakeven Point for Blitz Skateboards

What volume of demand is needed for Blitz to breakeven?

a. 60
b. 70
c. 80
d. 50

Answer:

The correct answer is option d: 50 units. Blitz needs to sell 50 skateboards to cover their costs and break even.

Blitz is a small company that is introducing a new skateboard to the market, priced at $120 each. The company has estimated fixed costs for equipment at $3,000 and estimated material and labor costs at $60 per skateboard.

To determine the volume of demand needed for Blitz to breakeven, we need to consider the fixed costs and the variable costs per unit. Fixed costs are the expenses that remain constant regardless of the volume of production, in this case, it is $3,000 for equipment.

Variable costs per unit are expenses that vary depending on the number of units produced. The variable costs per unit for Blitz are the sum of the material and labor costs, which amount to $60 per skateboard.

In order to breakeven, Blitz needs to cover both fixed costs and variable costs with the revenue from selling the skateboards. The revenue per unit is $120. The contribution margin per unit can be calculated by subtracting the variable costs per unit from the selling price per unit, which in this case is $120 - $60 = $60.

By dividing the fixed costs of $3,000 by the contribution margin per unit of $60, we arrive at the breakeven volume of 50 units. Therefore, Blitz needs to sell 50 skateboards to cover their costs and break even.