Question

Pulaski Plumbing Supply is planning to bring a new type of valve to market and is conducting a break-even analysis. For this analysis they are assuming a selling price of $2.50 per valve. The total fixed cost associated with producing the valve is $10,000. The variable cost to produce each valve is $2.10. In this analysis, what is the break-even point (BEP) for the valve?

Answer 1

Answer:

break-even point (BEP) = 25,000 items

Explanation:

given data

Selling price  = $2.50

Fixed costs = $10,000

Variable cost = $2.10

solution

we know that Revenue is sum of  Fixed costs and  variable costs

so we use here contribution margin method that is

Contribution margin = $ 2.50 - $ 2.10

Contribution margin  = $ 0.4

so

break-even point (BEP) for the valve is here

break-even point (BEP) = fixed cost ÷ Contribution margin    ...................1

put here value

break-even point (BEP) = $\frac{10000}{0.4}$  

break-even point (BEP) = 25,000 items