Question

Pete Corporation produces bags of peanuts. Its fixed cost is $21,437. Each bag sells for $3.99 with a unit cost of $2.05. What is Pete's break even point?

Answer 1

The total cost for Pete Corporation to produce x bags of peanuts is:

C = 21,437 + 2.05x

Here, 21,437 is the fixed cost, and 2.05x is the variable cost.

The revenue for selling x bags of peanuts is:

R = 3.99x

Because each bag sells for $3.99.

The break-even point is reached when the cost and the revenue are equal. Once past the break-even point, Pete will start getting positive profit, before the break-even point, there are losses.

The equilibrium point leads us to the equation:

21,437 + 2.05x = 3.99x

Subtracting 2.05x:

3.99x - 2.05x = 21,437

Simplifying:

1.94x = 21,437

Dividing by 1.94:

x = 21,437 / 1.94

x = 11,050

Pete Corporation must produce and sell 11,050 bags of peanuts to start getting profit.