Question

if a firm has fixed costs of $60,000, a sales price of $7.00 per unit, and a break-even point of 25,000 units, the variable cost per unit is _____.

Answer 1

The variable cost per unit is $4.60.

Step-by-step explanation:

The variable cost per unit can be calculated by subtracting the fixed costs from the total costs and dividing the result by the number of units produced. In this case, the break-even point is 25,000 units, so we can use this information to determine the variable cost per unit.

Total costs at the break-even point can be calculated by adding the fixed costs to the variable costs.

Let's use the equation:

Total costs = Fixed costs + (Variable cost per unit * Number of units)

At the break-even point, the total costs equal the total revenue, so we can set up the equation:

Total costs = Total revenue

Substituting the values we have:

$60,000 = $7 * 25,000 + (Variable cost per unit * 25,000)

Simplifying the equation:

$60,000 = $175,000 + (Variable cost per unit * 25,000)

Subtracting $175,000 from both sides:

Variable cost per unit * 25,000 = -$115,000

Dividing both sides by 25,000:

Variable cost per unit = -$115,000 / 25,000

Variable cost per unit = -$4.60

Since costs cannot be negative, the variable cost per unit is $4.60.