Question

for a watch maker the cost of labor and materials per watch is $15 and the fixed costs are $2000 per day.If each watch sells for $20 how many watches should be produced and sold each day to guarantee that the business break even?

Answer 1

To break even, the total revenue from selling watches should cover both the variable costs (labor and materials per watch) and the fixed costs. Let's calculate the breakeven point:

Let's represent the number of watches to be produced and sold each day as "x."

Total Cost = Total Fixed Cost + (Cost per Watch * Number of Watches)
Total Revenue = Price per Watch * Number of Watches

For break-even, Total Cost = Total Revenue:

Total Fixed Cost + (Cost per Watch * x) = Price per Watch * x

Now, plug in the given values:

$2000 + ($15 * x) = $20 * x

Now, let's solve for "x" (the number of watches to be produced and sold each day):

$2000 = $20x - $15x

$2000 = $5x

x = $2000 / $5

x = 400

Therefore, the watchmaker should produce and sell 400 watches each day to guarantee breaking even. At this production level, the total revenue from selling 400 watches at $20 each will be sufficient to cover the total variable costs ($15 per watch) and the fixed costs ($2000 per day).