Question

If a company is selling 100 items for $10 each, and variable costs of $5 per item, how much can their fixed expenses be for them to break even?

a) -$500
b) -$501
c) -$499
d) None of the above

Answer 1

To calculate the break-even fixed expenses, subtract the variable costs from the total revenues. With the company selling 100 items at $10 each and variable costs of $5 per item, the break-even fixed expenses can be up to $500.

Step-by-step explanation:

To determine how much a company's fixed expenses can be for them to break even, we need to calculate the difference between the revenues and the variable costs. In this case, the company is selling 100 items at $10 each, resulting in total revenues of $1000. The variable costs are $5 per item, so for 100 items, the variable costs amount to $500. To break even, the total costs (fixed costs plus variable costs) need to equal the total revenues.

Therefore, if we subtract the variable costs from the total revenues ($1000 - $500), we find that the fixed expenses can be up to $500 for the company to break even. This means that out of the provided options, answer (a) -$500 is the correct one.