Question

A firm has fixed operating costs of $10,000, the sale price per unit of its product is $25, and its variable cost per unit is $15. The firm's operating breakeven point in units is ________ and its breakeven point in dollars is ________.

A) 1,000; $6,250.
B) 400; $10,000.
C) 400; $25,000.
D) 1,000; $25,000.

Answer 1

D) 1,000; $25,000.

Step-by-step explanation:

Let us assume the company produces x units. The total cost is:

Total cost = fixed cost + variable cost × number of items = $10000 + 15 × x = 10000 + 15x

The revenue = number of unit × price per unit = x × $25 = 25x

At breakeven, the revenue and cost are equal, therefore:

25x = 10000 + 15x

25x - 15x = 10000

10x = 10000

x = 10000/10

x = 1000 units

The price at breakeven point = 25x = 25(1000) = $25000

Answer 2

The correct answer is D.

Step-by-step explanation:

Giving the following information:

Fixed costs= $10,000

Selling price= $25

Unitary variable cost= $15

To calculate the break-even point in units and dollars, we need to use the following formulas:

Break-even point in units= fixed costs/ contribution margin per unit

Break-even point in units= 10,000 / (25 - 15)

Break-even point in units= 1,000

Break-even point (dollars)= fixed costs/ contribution margin ratio

Break-even point (dollars)= 10,000 / (10/25)

Break-even point (dollars)= $25,000