Assume a fixed cost of $900, a variable costof $4.50 per unit and a selling price of $5.50per unit.– A) What is the break-even point?– B) How many units must be sold to make a profitof $500.– C) How many units must be sold to average $0.25profit per unit? $0.50 profit per unit? $1.50 profitper unit
Question
Assume a fixed cost of 4.50 per unit and a selling price of 500.– C) How many units must be sold to average 0.50 profit per unit? $1.50 profitper unit
Solution
A) The break-even point is the point at which total revenue equals total costs, meaning there is no profit or loss. To calculate this, we need to find out how many units need to be sold to cover the fixed costs. The formula for this is:
Break-even point in units = Total Fixed Costs / (Selling Price per unit - Variable Cost per unit)
So, in this case, the break-even point would be:
Break-even point = 5.50 - $4.50) = 900 units
B) To make a profit of 500. The formula for this is:
Units to sell for a specific profit = (Total Fixed Costs + Desired Profit) / (Selling Price per unit - Variable Cost per unit)
So, in this case, the number of units to sell to make a profit of $500 would be:
Units to sell = (500) / (4.50) = 1400 units
C) To find out how many units must be sold to average a certain profit per unit, we first need to calculate the total profit desired. The formula for this is:
Units to sell for a specific average profit = (Total Fixed Costs + (Desired average profit per unit * number of units)) / (Selling Price per unit - Variable Cost per unit)
So, in this case, the number of units to sell to average $0.25 profit per unit would be:
Units to sell = (0.25 * number of units)) / (4.50)
Solving this equation for the number of units gives us 3600 units.
Similarly, for $0.50 profit per unit, the number of units would be 1800 units.
And for $1.50 profit per unit, the number of units would be 600 units.
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