Question

North safety products manufactures butyl gloves that offer permeation resistance to gas or water vapors for workers that use dangerous chemicals like ketones. the company has fixed costs of $10 million for its butyl glove production and unit variable costs of $5 per pair. if the company charges $15 per pair, how many pairs of gloves must it sell to break even?

Answer 1

Company fixed cost = $10 million = $10,000,000

Variable cost per pair = $5

Company charges each pair = $15

Hence the company makes $10 profit per pair regardless the company fixed cost and only considering the variable cost.

Let subtract the variable cost per pair from the company charging each pair = 15 - 5 = $10

Thus the company now makes $10 per pair, and it has to sell 1,000,000 pairs of gloves to reach the break-even point. The break-even point refers to the point where total cost and revenue are equal.

Thus for 1,000,000 pairs, the company total earning = 10 x 1,000,000 = $10,000,000 = $10 million