Asta, Inc., is a medical laboratory that performs tests for physicians. Asta anticipates performing between 5,000 and 12,000 tests during the month of April. Compared to industry averages, at the low range of activity Asta has a lower sales price per test, higher fixed costs, and the same breakeven point in number of tests performed. At the high range of activity, Asta’s sales price per test and fixed costs are the same as industry averages, and Asta’s variable costs are lower. At the low range of activity (0 to 4,999 tests performed) fixed costs are $160,000. At the high range of activity (5,000 to 14,999 tests performed) fixed costs are $200,000. Sales price per test $60 Variable costs per test 20
What is Asta’s breakeven point in number of tests at the low activity range?
The contribution margin per test is sales price less variable cost, or $40 ($60 - $20).
At low activity with fixed costs of $160,000, the breakeven point is fixed costs divided by unit contribution margin, or $160,000 ÷ $40 = 4,000 tests