Question

You are in the business of making kombucha tea. Your variable costs to produce each bottle is $1. Your fixed costs are $100,000/year and you expect to sell 300,000 bottles in your first year. How many bottles must you sell at $3/bottle to cover your fixed costs and earn your target profit of $100,000

Answer 1

Answer:

Break-even point in units= 100,000 units

Explanation:

Giving the following information:

Your variable costs to produce each bottle is $1.

Your fixed costs are $100,000/year.

How many bottles must you sell at $3/bottle to cover your fixed costs and earn your target profit of $100,000

To calculate the number of units to be sold, we need to use the following formula:

Break-even point in units= (fixed costs + desired profit)/ contribution margin per unit

Break-even point in units= (200,000) / (3 - 1)

Break-even point in units= 100,000 units