Question

Assume a fixed cost of $900, a variable cost of $4.50, and a selling price of $5.50. 

a. What is the break-even point? 

b. How many units must be sold to make a profit of $500.00? 

c. How many units must be sold to average $0.25 profit per unit? $0.50 profit per unit? $1.50 profit per unit? 

Answer 1

Fixed cost = F = $900

Variable cost = V = $4.50

Selling Price = S = $5.50

Let units manufactured = P

A) Under breakeven, Total Revenue = Total Cost

S x P = F + (V x P)

5.50 P = 900 + 4.50 P

P = 900 Units

B) For a profit = $500

Profit = Total Revenue - Total Cost

500 = (S x P) - F - (V x P)

500 = 5.50P – 4.50P – 900

P = 1400 Units

C) Given that, Profit per unit = $0.25

Profit = Total Revenue - Total Cost

(0.25 P) = (S x P) - F - (V x P)

0.25 P = 5.50P – 4.50P – 900

900 = 0.75P

P = 1200 Units

Given that, Profit per unit = $0.50

Profit = Total Revenue - Total Cost

(0.50 P) = (S x P) - F - (V x P)

0.50 P = 5.50P – 4.50P – 900

900 = 0.50 P

P = 1800 Units