- CFA Exams
- CFA Exam: Level I 2021
- Study Session 11. Corporate Finance (2)
- Reading 34. Measures of Leverage
- Subject 3. Total Leverage and Breakeven Points

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**CFA Practice Question**

A firm plans to manufacture widgets and sell them at a price of $4 each. Fixed costs associated with the project will be $7,500 and variable costs for each widget will be $3.50. The operating breakeven point for the production of the widgets is ______ widgets.

B. 20,000

C. 50,000

A. 15,000

B. 20,000

C. 50,000

Correct Answer: A

Each unit sold contributes $0.50 to cover the fixed costs. Q* = $7,500/$0.50 = 15,000 units

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**User Contributed Comments**
10

User |
Comment |
---|---|

jhmorris |
While it might not save time in this instance, the BRKEVN fucntion within the BAII Plus Professional can solve this problem quickly. Steps: 1. Press 2nd and the number 6 2. FC = 7,500 (fixed costs) 3. VC = 3.50 (variable cost per unit) 4. P = 4.00 (price per unit) 5. PFT = 0.00 (profit level, in this case zero due to the fact that we are looking for the break even point) 6. Scroll to Q and press CPT |

VenkatB |
Thanks jhmorris |

2014 |
F/p-v (per unit cost) |

moneyguy |
Yes, the BAII method eliminates memorizing more formulas. Enter in known variables and press compute for unknown. I like it! |

johntan1979 |
Naive |

jonan203 |
HP12C: 7,500 <enter><enter> 4 <enter> 3.50 <minus><divide> = 15,000 don't rely on the calculator no matter which one you use. know the formulas! |

praj24 |
wow! FC/C that's all you need |

chesschh |
Even better is to learn the logic of the problem... in this case it is very easy. you earn .5 for each unit sold, so you need to sell 15,000 units to breakeven the fixed costs of $7,500 |

cfastudypl |
I agree with you johntan1979, and it is not just naive but very naive indeed. |

MathLoser |
Imagine we have an extreme hard question about this and people wished that they knew how to calculate it using BRKEVN. It's better if you knew something than nothing at all. |