[Joaquina]

The scenario is the following:

You want to open up a custom skateboard shop. You can sell each skateboard for $160. It takes 3 hours to make each skateboard. Each skateboard maker earns $25 per hour. Each skateboard costs $15 in raw materials. You estimate that your fixed costs are $20,000 per month.

What is the break-even dollar amount?

I have done this:

BE$= FC / (1 – (VC/P))
BE$= 20,000/ (1-(160/90))
BE$= -25,714.29

I got VC=90 since:
$15 in raw materials + ($25 x 3 hrs that take to make 1 skateboard) = $90

But I know I'm doing something wrong since there's no logic in getting a negative number for the break-even dollars.

Help?

[morgaine300]

You're right that there's no logic in it. You can't sell a negative amount.

Take another look at this:

BE$= FC / (1 – (VC/P))
BE$= 20,000/ (1-(160/90))

Did you follow the equation?

There's also another way to do it without using percentages:
FC/CM
CM (contribution margin) = price - variable
That gives you break even in units and then * 160 price.

You've done it using CM as a percentage. You are going to need to know the unit break even equation anyway.