Question

Derst Inc. sells a particular textbook for $140. Variable expenses are $25 per book. At the current volume of 6,000 books sold per year the company is just breaking even. Given these data, the annual fixed expenses associated with the textbook total: A) $400,000 B) $690,000 C) $840,000 D) $150,000

Answer 1

Answer:

Option (B) is correct.

Explanation:

Given that,

Selling price of a product = $140 per textbook

Variable expenses = $25 per book

Books sold per year = 6,000 books (It is the break even point)

The break even point indicates that there is no profit or loss incurred at the sales.

This means that the sales revenue is equal to the total cost incurred to produced these goods.

Sales per unit - Variable cost per unit - Fixed costs per unit = 0

$140 - $25 - Fixed costs = 0

$115 = Fixed costs per unit

Therefore, the total amount of fixed cost is calculated as follows:

= Fixed cost per unit × Number of books sold

= $115 × 6,000

= $690,000