In order to produce a new product, a firm must lease equipment at a cost of...
In order to produce a new product, a firm must lease equipment at a cost of $50,000 per year. The managers feel that they can sell 10,000 units per year at a price of $35. What is the highest variable cost that will allow the firm to at least break even on this project?
Homework Answers
> To break even this project 10000 units is considered as break even point in units.
>> Break even point in units = Fixed cost / Contribution margin per unit.
>> 10000 = $ 50000 / CM per unit.
>> CM per unit = $ 5
>> Variable cost = Selling price - CM per unit = $ 35 - $ 5 = $ 30.
The highest variable cost of $ 35 is allowed to break even this project.
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