Break-even analysis tells you how many units of a product must be sold to cover the fixed and variable costs of production. The break-even point is considered a measure of the margin of safety. Break-even analysis is used broadly, from stock and options trading to corporate budgeting for various projects.

The formula for break-even analysis is as follows:

Break-even quantity = Fixed costs / (Sales price per unit - Variable cost per unit)

Where:

Fixed costs are costs that do not change with varying output (e.g., salary, rent, building machinery).

Sales price per unit is the selling price (unit selling price) per unit.

Variable cost per unit is the variable costs incurred to a unit that has been made.

Directions: Determine the break-even point of the company.

Destiny Williams is the managerial accountant in charge of Delicate Inc., which sells water bottles. She previously determined that the fixed costs of the company that consists of property taxes, a lease, and executive salaries, which add up to $5,000,000. The variable cost associated with producing one water bottle is $5.00 per unit. The water bottle is sold at a premium price of $12.00. Determine the break-even point of Delicate Inc.'s premium water bottle. How many water bottles do Delicate Inc. need to sell to break-even? Show your computation.