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Answer :
Final answer:
To break even, a winemaker who has $500,000 in fixed costs and sells each bottle of wine at a price of $15 with a contribution margin of 18%, must sell approximately 185,186 bottles. Hence, the correct answer is (b) 185,186.
Explanation:
To calculate the breakeven point, the winemaker's fixed costs must be divided by the contribution margin per bottle. The contribution margin is the selling price minus variable costs, expressed as a percentage of sales. In this case, the contribution margin is 18% of the selling price of $15, which equals $2.70. This means for each bottle of wine sold, $2.70 can be used to cover fixed costs. So, to find out the breakeven point, we divide the fixed costs of $500,000 by $2.70. This calculation results in approximately 185,185.185, which we round up to 185,186, because you can't sell a fraction of a bottle. Therefore, the winemaker needs to sell 185,186 bottles of wine to break even. The correct option is (b) 185,186.
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