Question

If your cost in manufacturing a shipment of clocks consists of a setup expense of $225 plus $11 per clock and you want your break even point for a particular shipment to be no greater than 25 clocks then what is the minimum price that you can charge

Answer 1

$20 per clock

Explanation:

A shipment has:

Fixed Cost = 225 (one time)

Variable Cost = 11 per clock

If there are x clocks in a shipment, total cost would be:

Total Cost = Fixed + Variable

Total Cost = 225 + 11x

If there are 25 clocks in a shipment (x = 25), the total cost would be:

Total Cost = 225 + 11(25) = $500

To break even, you must raise $500 from the 25 clocks, so how much would you need to charge??

500/25 = $20 per clock