Question

A company incurs fixed costs of $35,000 and average variable costs of $7 per item. This company sells 10,000 units and just breaks even. The unit selling price for the product is:_________

Answer 1

The unit selling price for the product is $10.5

Step-by-step explanation:

The formula for break-even quantity (BEQ) is as followed

BEQ = FC / (P - VC)

Where FC is fixed cost, P is price and VC is variable cost

Plug in the numbers we got

10,000 = 35,000 / (P - 7)

=> P - 7 = 3.5

=> P = 10.5

Double check: With $10.5 the unit price

The revenue will be 10,000 * 10.5 = $105,000

Total variable costs 10,000 * 7 = $70,000

So the Total costs = total variable costs + fixed cost = $70,000 + $35,000 = $105,000 = Revenue. Really breaks even.