Question

A particular company produces widgets. Each widget sells for $9, and the variable cost of producing each unit is 40% of the selling price. If the monthly fixed costs incurred by the company are $50,000, what is the break-even point?

Answer 1

To find the break-even point, we need to determine the number of widgets the company needs to sell in order to cover its costs.

Given information:

- Selling price per widget: $9

- Variable cost as a percentage of selling price: 40%

- Monthly fixed costs: $50,000

Let's break down the costs:

Variable cost per widget = 40% * $9 = $3.60

To find the break-even point, we need to set up an equation:

Total cost = Fixed costs + (Variable cost per widget * Number of widgets)

Let's represent the number of widgets as "x".

Plugging in the values, we get:

Total cost = $50,000 + ($3.60 * x)

At the break-even point, the total cost equals the revenue. Since the selling price per widget is $9, the revenue can be represented as:

Revenue = Selling price per widget * Number of widgets

Revenue = $9 * x

Setting the total cost equal to the revenue, we have:

$50,000 + ($3.60 * x) = $9 * x

To solve for x, let's isolate the variable:

$50,000 = $9 * x - $3.60 * x

$50,000 = $5.40 * x

Now, we can solve for x:

x = $50,000 / $5.40

Calculating the division:

x ≈ 9,259.26

Therefore, the break-even point is approximately 9,259 widgets. The company needs to sell at least 9,259 widgets to cover its costs and reach the break-even point.

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