Question

3. A small business owner is contemplating the addition of another product line. Capacity

increases and equipment will result in an increase in annual fixed costs of $50,000.
Variable costs will be $25 per unit.
A) What unit selling price must the owner obtain to break-even on a volume of 2,500 units
a year?
B) Because of market conditions, the owner feels a revenue of $47 is preferred to the
value determined in part a. What volume of output will be required to achieve a profit of
$16,000 using this revenue?
FC = $50,000 per year
VC = $25 per unit

Answer 1

Answer: Your welcome!

Step-by-step explanation:

A) To break even on a volume of 2,500 units a year, the owner must obtain a unit selling price of $75 (50,000/2,500 = 20 + 25 = 45).

B) To achieve a profit of $16,000 using a revenue of $47 per unit, the owner must have an output of 34,082 units (50,000 + 16,000/47 = 1,042 + 2,500 = 3,542).