Question

The TOP pharmaceutical company breaks even when it sells for $ 200,000 worth of Ciprox pill boxes. If those fixed costs reach $ 40,000 and each box of that pill sells for $ 5, what is the average variable cost for a box of Ciprox tablet?

Answer 1

Since we sell each pill for $5 and the sales are $200,000 for the break even point then we need to sell:

`(200000)/(5)=40000`

units of the product.

Now, the break even point is given by:

`bp=\frac{\text{fixed cost}}{\text{ selling price-variable cost}}`

Let v be the variable cost, then we havE:

`\begin{gathered} 40000=(40000)/(5-v) \\ 5-v=(40000)/(40000) \\ 5-v=1 \\ v=5-1 \\ v=4 \end{gathered}`

Therefore the variable cost is $4