Gabrielle and her business partners are starting a new business that sells organic shampoo. After analyzing the market they have a projected sales forecast showing that they must sell 50,000 bottles of shampoo in 12 months to break-even. Calculating the variable unit cost and projected unit price gives a break-even volume of 45,000 bottles. Why should the projected unit price be changed based on the break-even volume?
Answer
A
The break-even volume is too close to the forecasted unit sales.
B
The break-even volume is much greater than the forecasted unit sales.
C
The break-even volume is drastically lower than the forecasted unit sales.
D
The break-even volume is not related to the forecasted unit sales.
Explanation
The forecast is 50,000 bottles, while the break-even volume is 45,000 bottles—a difference of only 5,000 bottles. That leaves a relatively small margin for sales to fall short before the business loses money, so the projected unit price should be adjusted. The best answer is “The break-even volume is too close to the forecasted unit sales.”
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