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Chicago Plumbing Supply is planning to bring a new type of valve to market and is conducting a break-even analysis. For this analysis it is assuming a selling price of $2.50 per valve. The total fixed cost associated with producing the valve is $10,000. The variable cost to produce each valve is $2.10. In this analysis, what is the break-even point (BEP) for the valve?

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To calculate the break-even point (BEP) in units for the valve, we can use the following formula:

\[ \text{BEP (in units)} = \frac{\text{Total Fixed Costs}}{\text{Selling Price per unit} - \text{Variable Cost per unit}} \]

Given:

  • Total Fixed Costs = $10,000
  • Selling Price per valve (P) = $2.50
  • Variable Cost per valve (V) = $2.10

First, we need to calculate the contribution margin per unit, which is the difference between the selling price and the variable cost:

\[ \text{Contribution Margin (CM)} = P - V = 2.50 - 2.10 = 0.40 \]

Now we can plug the values into the BEP formula:

\[ \text{BEP (in units)} = \frac{10,000}{0.40} = 25,000 \]

Therefore, the break-even point for the valve is 25,000 units.