Question

In order to produce a new product, a firm must lease equipment at a cost of $165,000 per year. The managers feel that they can sell 63,000 units per year at a price of $88. What is the highest variable cost that will allow the firm to at least break even on this project

Answer 1

$85.38 = unitary variable cost

Step-by-step explanation:

Giving the following information:

Fixed costs= $165,000 per year.

Break-even point in units= 63,000 units

Selling price= $88

To calculate the unitary variable cost, we need to use the following formula:

Break-even point in units= fixed costs/ (selling price - unitary variable cost)

63,000= 165,000 / (88 - unitary variable cost)

63,000*88 - 63,000*unitary variable cost = 165,000

5,544,000 - 63,000unitary variable cost = 165,00

5,379,000/63,000 = unitary variable cost

$85.38 = unitary variable cost