478,881 views
20 votes
20 votes
Help me solve this problem please.

Help me solve this problem please.-example-1
User Mattshane
by
2.5k points

1 Answer

12 votes
12 votes

Answer:

C. 1889

Explanation:

Given fixed weekly costs of $3778 and a variable cost per handle of $1, you want to know how many handles must be produced weekly for sale at $3 each to break even.

Contribution margin

The "contribution margin" of each handle is the difference between its variable cost and its selling price:

$3 -1 = $2

Break even

The enterprise will break even when the sum of contribution margins is equal to the fixed costs. If h is the number of handles produced and sold, then to break even, we must have ...

2h = 3778

h = 1889

1889 handles must be molded weekly to break even.

__

Additional comment

You get the same result if you write the profit equation and solve for the number of handles that makes profit be zero.

profit = revenue -cost

0 = (3h) -(3778 +1h)

3778 = 2h . . . . . as above

1889 = h