Question

George is required to produce 500 frames for an art gallery. He spent $100 on the wood required for all these frames. He also spent $50 in polishing all the final frames. He rented two floors of an art gallery for about $700. What selling price should George charge the art gallery if he wants to break even?

Answer 1

George should charge 1.70$ for each frame to break-even.

Explanation:

Variable cost for the frames:

Wood + polishing = $100 + $50 = $150

Variable cost per frame would be:

$150/ 500 = $0.30

The fixed cost of the operation is $700.

George has to make 500 frames.

Fixed cost / (Selling price per unit – variable cost per unit) = 500

$700 / (Selling price per unit - $0.30) = 500

700 = 500 (Selling price per unit – 0.30)

700 = 500 * Selling price – 500 * 0.3

700 = 500 * Selling price – 150

(700 + 150) / 500 = Selling price

850 / 500 = 1.7