Question

Owen Conner works part-time packaging software for a local distribution company in Indiana. The annual fixed cost is$10,000 for this process, direct labor is $3.50 per package, and material is $4.50 per package. The selling price will be$1250 per package. How much revenue do we need to take in before breaking even? What is the break-even point inunits?

Answer 1

To break even, Owen Conner's local distribution company must sell approximately 9 software packages, generating a revenue of $11,250, considering their fixed costs and variable costs per package.

Step-by-step explanation:

Owen Conner's part-time job involves calculating the break-even point for his company's packaging process. The break-even point can be found by setting the total costs equal to the total revenues. The fixed annual cost is $10,000, and each package incurs a variable cost of $3.50 for labor and $4.50 for materials, totaling $8.00 per package. The selling price is $1,250 per package. To find the revenue needed to break even, we use the formula: Break-even point in units = Fixed Costs / (Selling Price per unit - Variable Cost per unit). Plugging in the values, we get 10,000 / (1,250 - 8) = 10,000 / 1,242 = approximately 8.05 units. Since we cannot sell a fraction of a unit, we would need to sell 9 units to cover our costs and break even. The revenue needed to break even would be 9 units times the selling price per unit, which is 9 * $1,250 = $11,250.

Answer 2

revenue we need to take in before breaking even = $1,250 × 8 = $10,000

Break-even units = 9

Step-by-step explanation:

Data provided in the question:

Annual fixed cost = $10,000

Direct labor cost = $3.50 per package

Material cost = $4.50 per package

Selling price = $1,250

Now,

let the break-even units be 'x'

Thus,

total cost = $10,000 + $3.50x + $4.50x

or

total cost = $10,000 + $8x

also,

total revenue = $1,250x

now,

at break-even

total cost = Total revenue

or

$10,000 + $8x = $1,250x

or

$1250x - $8x = $10,000

or

$1,242x = $10,000

or

x = 8.05 ≈ 9 packages

at 9 packages, we have break-even revenue

Therefore,

revenue we need to take in before breaking even = $1,250 × 8 = $10,000