Question

You work at a bakery that has monthly fixed costs of $3,000 and the average variable cost per item is $2.25. If the average price per baked good is $4.25, the break-even quantity is □ baked goods per month.

Answer 1

To break even, the bakery must sell 1,500 baked goods per month. This is calculated by dividing the fixed costs of $3,000 by the difference between the selling price of $4.25 and the average variable cost of $2.25.

Step-by-step explanation:

To calculate the break-even quantity of baked goods per month for the bakery, one must first understand how average variable costs and fixed costs relate to total cost and pricing. The average variable cost is obtained by dividing the total variable cost by the quantity of the output, which in this case is $2.25 per baked good. Fixed costs remain constant, in this instance, at $3,000 per month. The selling price of each baked good is $4.25.

To find the break-even point where total costs equal total revenue, we use the formula:

• Break-even point (quantity) = Fixed Costs / (Price per unit - Average Variable Cost per unit)

Substituting the given values:

• Break-even point (quantity) = $3,000 / ($4.25 - $2.25)
• Break-even point (quantity) = $3,000 / $2.00
• Break-even point (quantity) = 1,500 baked goods

Therefore, the bakery needs to sell 1,500 baked goods per month to break even.

Answer 2

The break-even quantity is 1500 baked goods per month.

Step-by-step explanation:

The break-even quantity can be calculated by dividing the fixed costs by the contribution margin, which is the difference between the average price per baked good and the average variable cost per item. In this case, the fixed costs are $3,000 and the contribution margin is $4.25 - $2.25 = $2. The break-even quantity is calculated as:

Break-even Quantity = Fixed Costs / Contribution Margin

= $3,000 / $2

= 1500 baked goods per month.