Question

A firm has fixed operating costs of $253,750, a sales price per unit of $100, and a variable cost per unit of $65. The firm's operating breakeven point in dollars is ________.

Answer 1

Answer:

$725000

Explanation:

The break-even point is the point at which the firms total expenses is equal to its total revenue and it neither makes a profit nor a loss. At any point before this, the firm makes a loss and at any point after this, the firm is making a profit. This is because, it has got to a point where after the unit variable costs are covered from the revenue, there is enough to cover fixed costs as well because the firm’s fixed costs are now being spread over a greater number of units.

The break-even point is calculated as:

Fixed costs / (Selling price per unit - variable cost per unit)

Hence, in this case : $253750 / ($100 - $65) = 7250 units.

In dollars, this would be...

Revenue : 7250 x $100 = $725000

Expenses : $253750 + ($65 x 7250) = $725000