Question

Hedge Fun is a landscaping firm that specializes in topiary. It contracts with the owners of 125 local homes and provides its service at an annual fee of $1,300. Its average variable cost is $800, and its annual fixed cost is $28,000. What is the break-even level of output? a. 125 b. 87 c. 63 d. 56 e. none of the above

Answer 1

Break even in units = 56 units

Option d is the correct answer

Step-by-step explanation:

Break even in units is the number of units that a business must sale in order for it to have enough total revenues to cover total cost. It is a point where total revenue is equal to total cost and the firm earns no profit or no loss. The formula to calculate break even in units is as follows,

Break even in units = Fixed Cost / (Selling price per unit - Variable cost per unit)

Break even in units = 28000 / (1300 - 800)

Break even in units = 56 units