Breakeven Point Calculation for Neville's Pillow Store

What is the yearly breakeven point in units?

A. 6,667 pillows

B. 15,000 pillows

C. 10,000 pillows

D. 4,000 pillows

Answer:

The correct answer is C. 10,000 pillows.

The breakeven point is the point at which a company's revenues equal its expenses, resulting in neither a profit nor a loss. In this case, Neville’s Pillow Store sells pillows with a sales price of $25 each and each pillow costs $15 to produce. The store incurs a total of $100,000 in fixed costs each year.

To calculate the breakeven point in units, we can use the following formula: Breakeven point (in units) = Fixed costs / (Sales price per unit - Variable cost per unit)

First, we need to calculate the variable cost per unit, which is the cost of producing each pillow. Since each pillow costs $15 to produce, the variable cost per unit is $15.

Next, we can substitute the given information into the formula: Breakeven point (in units) = $100,000 / ($25 - $15) = 10,000 pillows

Therefore, Neville's Pillow Store needs to sell at least 10,000 pillows in a year to cover its fixed costs and break even. Any sales beyond this point will result in a profit for the store.