Question

Fixed cost of a donut manufacturing company per year if its breakeven point is 300,000 donuts, selling price of each donut is $3, and the cost of equipment and labor to make one donut is $1.

a) $600,000
b) $300,000
c) $100,000
d) $900,00

Answer 1

The fixed cost of the donut manufacturing company is $600,000 per year. This is calculated using the breakeven point, selling price, and variable cost per unit, and solving for the fixed costs.

Step-by-step explanation:

The question asks us to determine the fixed cost of a donut manufacturing company given the breakeven point, selling price per unit, and cost of equipment and labor per unit. The breakeven point is the production level where total costs equal total revenues, leaving no profit or loss. To calculate the fixed cost, we need to set up an equation based on the provided data: the company's breakeven point is 300,000 donuts, selling price is $3 per donut, and variable costs (equipment and labor) are $1 per donut.

To find the fixed costs, we use the breakeven formula: Fixed Costs + (Variable Cost per Unit x Number of Units) = Selling Price per Unit x Number of Units.

Let's plug in the numbers: Fixed Costs + ($1 x 300,000) = $3 x 300,000

Fixed Costs + $300,000 = $900,000

From this, we calculate Fixed Costs = $900,000 - $300,000

Fixed Costs = $600,000

Therefore, the fixed costs of the company are $600,000 per year.