Question

Texas Products Inc. has a division which makes burlap bags for the citrus industry. The unit has operating fixed costs of $10000 per month and it expects to sell 42000 bags per month. If the variable cost per bag is $1.50 what price must the division charge in order to break even?

Answer 1

To break even, the division must charge a price that covers both the fixed costs and the variable costs. The division must charge a price that is at least $0.2381 per bag in order to break even.

Step-by-step explanation:

To break even, the division must charge a price that covers both the fixed costs and the variable costs. The fixed costs are $10,000 per month. The variable cost per bag is $1.50. To find the price that covers the fixed costs, divide the total fixed costs by the number of bags sold: $10,000 / 42,000 = $0.2381 per bag. The division must charge a price that is at least $0.2381 per bag in order to break even.