Question

The Oliver Company plans to market a new product. Based on its market studies, Oliver estimates that it can sell up to 5,500 units in 2005. The selling price will be $7 per unit. Variable costs are estimated to be 40% of total revenue. Fixed costs are estimated to be $6,300 for 2005. How many units should the company sell to break even?

Answer 1

For the Oliver Company to break even, the total revenue must equal the sum of the variable costs and the fixed cost. Mathematically, this can be represented as: Total revenue = 0.4*(Total revenue) + (Fixed Costs) Let the number of units sold be x. then, 7*x = 0.4*(7*x) + 6300 Thus, x = 6300/(0.6*7) = 1500 units. Thus the company will have to sell 1500 units to break even.