Question

A division of the Gibson Corporation manufactures bicycle pumps. Each pump sells for $10, and the variable cost of producing each unit is 60% of the selling price. The monthly fixed costs incurred by the division are $50,000. What is the break-even point for the division? (Round your answers to the nearest whole number.)

(x,y)=

Answer 1

12,500 units

Explanation:

Given:

Selling cost of the pump = $10

Variable cost of producing each unit = 60% of selling cost

or

Variable cost of producing each unit = 0.60 × $10 = $6

Monthly fixed cost = $50,000

Now,

The profit per unit = Selling cost - Variable cost

or

The profit per unit = $10 - $6 = $4

Therefore,

The breakeven point =
`\frac{\textup{Fixed cost}}{\textup{Profit per unit}}`

or

the breakeven point =
`\frac{\textup{50,000}}{\textup{4}}`

or

the breakeven point = 12,500 units