Question

Owen Conner works part-time packaging software for a local distribution company in Indiana. The annual fixed cost is$10,000 for this process, direct labor is $3.50 per package, and material is $4.50 per package. The selling price will be$1250 per package. How much revenue do we need to take in before breaking even? What is the break-even point inunits?

Answer 1

Answer:

revenue we need to take in before breaking even = $1,250 × 8 = $10,000

Break-even units = 9

Explanation:

Data provided in the question:

Annual fixed cost = $10,000

Direct labor cost = $3.50 per package

Material cost = $4.50 per package

Selling price = $1,250

Now,

let the break-even units be 'x'

Thus,

total cost = $10,000 + $3.50x + $4.50x

or

total cost = $10,000 + $8x

also,

total revenue = $1,250x

now,

at break-even

total cost = Total revenue

or

$10,000 + $8x = $1,250x

or

$1250x - $8x = $10,000

or

$1,242x  = $10,000

or

x = 8.05 ≈ 9 packages

at 9 packages, we have break-even revenue

Therefore,

revenue we need to take in before breaking even = $1,250 × 8 = $10,000