Question

Find the breakeven point, given the following data:

Answer 1

The formula to find profit is

$q \: (p - vc) - fc = \pi$

where, q refers to quantity of output in units, p is the price per unit of output, vc is the variable cost per unit of output, fc is fixed cost and pi is profit. At the breakeven point profit is equals to zero, therefore:

$q(10.5 - 2.5) = 7 0000 \\ q = \frac{70000}{(10.5 - 2.5)} \\ q = 8750 \: units$

When we minus the variable cost from the price, this gives us the "contribution", which refers to the portion of the price of each unit sold that can cover the fixed cost. At the breakeven point, profit is zero because the business sell the amount that is just enough to cover their fixed cost, without making any loss or profit.

Hope this helps!