Question

Trudeau’s Body Shop incurs total costs given by TC = 2,400 + 100 Q. If the price it charges for a paint job is $120, what is its break-even level of output?

Answer 1

Answer:

The break-even level of output is 120 units.

Explanation:

Since Total Cost formula is provided, we can use elements contained in the formulae to determine the break-even level of output.

The  break-even level of output is the level of activity where a firm makes neither a Profit nor a Loss. In other words, Profit = $0

Step 1 : Collect data

So given :

TC = 2,400 + 100 Q

This means :

Fixed Costs = $2,400

Variable Costs = $100 per unit

Additional Information gives :

Selling Price per unit =  $120

Step 2 : Determine the break-even level of output

Break even (units) = Fixed Costs ÷ Contribution per unit

where,

Contribution per unit = Selling Price - Variable Cost

                                   = $20

thus,

Break even (units) = $2,400 ÷ $20

                              = 120 units

Conclusion :

The break-even level of output is 120 units.