Business Degree Certification Practice Test

What is the monthly break-even quantity for Littleton, Inc. with given fixed and variable costs?

1. 2,143 units

2. 2,500 units

3. 3,000 units

4. 15,000 units

The correct answer is: 3,000 units

To determine the monthly break-even quantity, one needs to understand the relationship between fixed costs, variable costs, and sales price. The break-even point occurs when total revenue equals total expenses (both fixed and variable). For Littleton, Inc., the fixed costs are constant regardless of how many units are produced, while variable costs change with the level of production. The formula generally used is: Break-even quantity = Fixed costs / (Selling price per unit - Variable cost per unit) When calculating the break-even quantity, if it is determined that 3,000 units is the result of correctly applied fixed and variable costs, this indicates that at this production level, Littleton, Inc. covers all its costs without making a profit or incurring a loss. Reaching the break-even point is vital for businesses as it informs them of the minimum output required to avoid losing money. Therefore, the conclusion that the monthly break-even quantity is 3,000 units showcases an understanding of cost structures and business profitability calculations.