Final answer:
To find the fixed costs given the break-even point, the price, and variable cost per unit, the break-even point formula is used. In this case, fixed costs are calculated to be $80,000.Option C is the correct answer.
Step-by-step explanation:
The student is trying to calculate the fixed costs of a firm given the price, variable cost per unit, and the break-even point. To find the fixed costs, consider the formula for the break-even point in units: Break-Even Point (units) = Fixed Costs / (Price - Variable Cost per Unit).
Plugging in the values provided:
40,000 = Fixed Costs / ($6.00 - $4.00)
40,000 = Fixed Costs / $2.00
Fixed Costs = 40,000 * $2.00
Fixed Costs = $80,000
Therefore, the fixed costs are $80,000.
In determining a firm's fixed costs, the student employs the break-even analysis formula, which relates fixed costs to price and variable cost per unit. The break-even point in units is expressed as the ratio of fixed costs to the difference between the price and variable cost per unit. Plugging in the provided values, with a break-even point of 40,000 units and a price of $6.00 per unit minus a variable cost of $4.00 per unit, the resulting calculation yields fixed costs of $80,000. This signifies that, at the break-even point, the firm needs to generate revenue equivalent to fixed costs to cover all associated expenses and achieve a zero-profit scenario.