Question

Gourmet Pets is interested in computing the break-even point for its new product Prime Cuts. The fixed costs of adding this product to the product line amounts to $20,000. Variable costs to produce one package of Prime Cuts are $2. Prime Cuts will sell for $6 per package. The break-even point would be:
A. 900 units.
B. 2,800 units.
C. 5,000 units.

Answer 1

Answer:

C. 5,000 units

Explanation:

The break-even point is the number of units Gourmet Pets needs to sell to outweigh the fixed costs plus the production costs. Let 'x' be the number of Prime Cuts units sold, the expression that models the balance for Prime Cuts is:

$B = -20,000 - 2x +6x$

In order to break even, the balance must be equal to or greater than zero:

$0 = -20,000 - 2x +6x\\x= \frac{20,000}{4} \\x=5,000$

The break-even point would be 5,000 units.