Question

if a firm has fixed costs of $50,000, a variable cost per unit of $5 and sales price per unit of $20, what is the firm’s breakeven point in units?

Answer 1

The breakeven point in units for a firm with fixed costs of $50,000, a variable cost of $5 per unit, and a sales price of $20 per unit is 3,334 units. This indicates when the company covers all costs and starts to make a profit.

Step-by-step explanation:

If a firm has fixed costs of $50,000, a variable cost per unit of $5 and a sales price per unit of $20, to calculate the firm’s breakeven point in units, we use the formula:
Breakeven Point (units) = Fixed Costs / (Sales Price per Unit - Variable Cost per Unit)

Plugging the values into the formula, we get:

Breakeven Point (units) = $50,000 / ($20 - $5) = $50,000 / $15 = 3333.33 units.

Since we can't sell a fraction of a unit, the firm would need to sell 3,334 units to breakeven.

The breakeven point is crucial for a company as it indicates when it will start generating profit and no longer incurring losses. Understanding this concept and its calculation is critical for financial planning and decision-making within a business.