Question

Greg has expenses of $5700 monthly. A car wash is $10.50. Unit variables are $2.50. How many full-service car washes does Greg need to break even each month?

a) 200
b) 500
c) 700
d) 1000

Answer 1

To find the number of full-service car washes Greg needs to break even each month, divide the fixed costs by the difference between the selling price per unit and variable costs per unit. Round up to the nearest whole number.

Step-by-step explanation:

To determine the number of full-service car washes Greg needs to break even each month, we can use the formula:

Break-even point (in units) = Fixed costs / (Selling price per unit - Variable costs per unit)

In this case, Greg's fixed costs are $5700, the selling price per unit is $10.50, and the variable costs per unit are $2.50. Plugging these values into the formula:

Break-even point = $5700 / ($10.50 - $2.50) = $5700 / $8 = 712.5

Since Greg cannot sell fractional car washes, the number of full-service car washes he needs to break even each month is rounded up to the nearest whole number, which is 713.