Question

If a firm has fixed costs of $60,000, a sales price of $7.00 per unit, and a break-even point of 25,000 units, the variable cost per unit is ________. $4.60 $5.40 $4.00 $5.00

Answer 1

Variable cost per unit is $4.6

Step-by-step explanation:

The break even point is the amount of sales that allow to pay all the fixed costs (paying previously the variable costs). If the firm sells 25,000 units at $7 each, then total sales are 25,000*7=175,000. Fixed costs are 60,000, so variable costs are 175,000 - 60,000 = 115,000 (because it is at its break even point). Then, if total variable costs are 115,000, per unit it will be 115,000/25,000 units = 4.6.