32.2k views
5 votes
Trudeau’s Body Shop incurs total costs given by TC = 2,400 + 100 Q. If the price it charges for a paint job is $120, what is its break-even level of output?

User Gur Dotan
by
8.6k points

1 Answer

6 votes

Answer:

The break-even level of output is 120 units.

Step-by-step explanation:

Since Total Cost formula is provided, we can use elements contained in the formulae to determine the break-even level of output.

The break-even level of output is the level of activity where a firm makes neither a Profit nor a Loss. In other words, Profit = $0

Step 1 : Collect data

So given :

TC = 2,400 + 100 Q

This means :

Fixed Costs = $2,400

Variable Costs = $100 per unit

Additional Information gives :

Selling Price per unit = $120

Step 2 : Determine the break-even level of output

Break even (units) = Fixed Costs ÷ Contribution per unit

where,

Contribution per unit = Selling Price - Variable Cost

= $20

thus,

Break even (units) = $2,400 ÷ $20

= 120 units

Conclusion :

The break-even level of output is 120 units.

User Gioele
by
8.5k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.

9.4m questions

12.2m answers

Categories