Question

An online-only electronics firm recently purchased $3000 worth of new equipment to create shock-proof packaging for its products. The cost of producing one shock-proof package is $2.50, and the firm charges the customer $4.50 for the packaging. Find the number of packages that must be sold for the company to break even.

Answer 1

To break even, the online electronics firm must sell 1,500 shock-proof packages, as this will cover the total fixed costs of $3,000, with a contribution margin of $2 per package.

Step-by-step explanation:

The question requires calculating the break-even point for an online electronics firm that sells shock-proof packaging. This involves finding the number of packages that need to be sold so that the total revenue equals the total costs (both fixed costs for equipment and variable costs for producing the packages).

The firm's fixed costs are $3,000 for the equipment. The variable cost per package is $2.50, and each package is sold for $4.50. The difference between the selling price and the variable cost is the contribution margin per package, which is $4.50 - $2.50 = $2.00.

To calculate the break-even point in units, we divide the total fixed costs by the contribution margin per package: $3,000 / $2.00 = 1,500 packages. Therefore, the firm must sell 1,500 shock-proof packages to break even.