A semiconductor manufacturer is developing a dedicated chip. The selling price per chip is ¥4,000, the variable cost per chip (wafer, package, test and so on) is ¥2,400, and the fixed costs such as mask making and design are ¥800 million. Which is the break-even sales volume?

Answer: C. 500,000 units

Each chip sold earns a contribution margin of 4,000 − 2,400 = ¥1,600. To cover the fixed costs of ¥800 million with this margin, 800 million ÷ 1,600 = 500,000 units must be sold, and the sales at that point (the break-even sales) are 500,000 × 4,000 = ¥2 billion. In general, the more advanced the process, the larger the fixed costs for masks and design, so a product with a small sales volume may never reach its break-even point.

• A. This divides the fixed costs by the selling price. Each chip sold also incurs variable cost, so only the contribution margin of ¥1,600 is left to cover fixed costs.
• B. This divides the fixed costs by the variable cost per chip, which is not a meaningful quantity.
• C. Correct. It is fixed costs ÷ contribution margin per unit (price − variable cost per unit).