Question

You expect to sell 500 cell phones a month, which have a marginal cost of $50. If your fixed costs are $7,000 per month, and $5,000 of those fixed costs are avoidable, what is the break-even price?

Answer 1

The break-even price for selling 500 cell phones a month, with a marginal cost of $50 per cell phone and $2,000 of unavoidable fixed costs, is $54 per cell phone.

Step-by-step explanation:

To calculate the break-even price for the cell phones, we need to cover both the variable costs (marginal cost) and the fixed costs. Since the question states that $5,000 of the fixed costs are avoidable, we will only consider the unavoidable fixed costs, which are $7,000 - $5,000 = $2,000. The marginal cost per cell phone is $50.

We expect to sell 500 cell phones a month, so the total marginal cost is 500 cell phones × $50 per cell phone = $25,000. Therefore, the total cost that needs to be covered to break even is the sum of the marginal cost and the unavoidable fixed costs, which is $25,000 + $2,000 = $27,000.

To find the break-even price per cell phone, we divide the total cost that needs to be covered by the number of cell phones, which is $27,000 / 500 = $54 per cell phone. So, the break-even price is $54.