Question

A producer with only one product has total fixed costs of $15,000 per month. In addition, it cost the producer $100 in variable costs to produce each unit of his product (raw materials and direct labor cost). The producer charges his wholesalers $125 per unit. What is the sales amount to break even

Answer 1

$75,000

Step-by-step explanation:

The BEP which is the break even point is the point where the company's sales or revenue generated is equal to the cost incurred. As such, the BEP is the number of units that must be sold for the company to make neither a profit nor a loss.

Both sales and variable cost are dependent on the number of units sold.

The sales less the variable cost gives the contribution margin. The contribution margin less the fixed cost gives the net operating income.

Let the number of units that must be sold to break even be y

125y - 100y - 15,000 = 0

25y = 15,000

y = 15000/25

y = 600

The sales amount to breakeven

= 600 * $125

= $75,000

Answer 2

The options are given below:

A. 600 units

B. 450 units

C. 550 units

D. 650 units

E. 500 units

The correct option is A.

Step-by-step explanation:

The breakeven point refers to the level of production at which the costs of production will be equal to the revenues for a product.

In the question above, we are given:

Fixed costs = $15,000

Variable costs = $100 per unit

Price of one unit after production = $125

The formula for calculating the breakeven is given as:

Breakeven =
`(fixed costs)/(revenue per unit - variable costs per unit)`

we have:

Breakeven =
`(15,000)/(125 - 100)`

Breakeven =
`(15,000)/(25)`

Breakeven = 600 units.