Question

The Oliver Company plans to market a new product. Based on its market studies, Oliver estimates that it can sell up to 5,500 units in 2005. The selling price will be $2 per unit. Variable costs are estimated to be 20% of total revenue. Fixed costs are estimated to be $6,400 for 2005. How many units should the company sell to break even

Answer 1

4,000

Step-by-step explanation:

Break even quantity = fixed cost / price - variable cost per unit

Total revenue = price x quantity sold

$2 x 5,500 = $11,000

Variable cost = 0.2 x $11,000 = $2,200

Variable cost per unit = $2,200 / 5500 = $0.4

$6,400 / $2 - $0.4 = 4,000