Question

The Metropolitan Company sells its latest product at a unit price of $4. Variable costs are estimated to be 20% of the total revenue, while fixed costs amount to $7,200 per month. How many units should the company sell per month to break even, assuming that it can sell up to 5,000 units per month at the planned price? units Need Help? Read Watch Yok to a Tutor

Answer 1

The company should sell at least 2,250 units to break even

Explanation:

We need to calculate what is know as break-even point (BEP).

It can be calculated as

`BEP=(FC)/(p-vc)`

FC: fixed cost

p: price

vc: variable cost

The variable cost are expressed as 20% of the revenue, so it can be calculated that vc=0.2*p=0.2*4=0.8

Now we can calculate the BEP

`BEP=(FC)/(p-vc)=(7200)/(4-0.8)=(7200)/(3.2)=   2,250\, units`