Question

If a firm has fixed costs of $30,000, a variable cost per unit of $.75, and a break-even point of 5,000 units, the sales price per unit is ________.

Answer 1

Answer:

The sales price per unit will be $6.75.

Explanation:

The break even point is where the total revenue is total cost such that profit equals zero.

The break even level of output is 5,000 units.

The fixed costs is $30,000.

The variable cost per unit is $.75.

The total variable cost is

= $.75\ \times\ 5,000$

= $3750

The total cost will be

= $30,000 + $3,750

= $33,750

Which is also equal to total revenue

Now,

Total revenue = $Price\ \times\ Quantity$

$33,750 = $Price\ \times\ 5,000$

Price = $\frac{33,750}{5,000}$

Price = $6.75