Question

Calloway Cab Company computes its break-even point strictly on the basis of cash expenditures related to fixed costs. Its total fixed costs are $490.000, but 5 percent of this value is represented by amortization. Its contribution margin (price minus variable cost) for each unit sold is $4.50. How many units does the firm need to sell to reach the cash break-even point? (Round the final answer to the nearest whole number.) Cash break-even point unitsl

Answer 1

To calculate total revenue and total cost for each output level, multiply the units sold by the price per unit and add the fixed costs to the variable costs respectively. To calculate marginal revenue and marginal cost, subtract the total revenue/cost at the previous output level from the total revenue/cost at the current output level.

Step-by-step explanation:

To calculate the total revenue for each output level, multiply the number of units sold by the price per unit. For example, when one unit is sold, the total revenue is $20. When two units are sold, the total revenue is $40.

To calculate the marginal revenue, subtract the total revenue at the previous output level from the total revenue at the current output level. For example, when two units are sold, the marginal revenue is $20 ($40 - $20).

To calculate the total cost for each output level, add the fixed costs to the variable costs. For example, when one unit is produced, the total cost is $40 ($20 + $20).

To calculate the marginal cost, subtract the total cost at the previous output level from the total cost at the current output level. For example, when two units are produced, the marginal cost is $5 ($45 - $40).