A firm makes and sells a computer for $1000. The variable cost to produce a computer, for the...

Question:

A firm makes and sells a computer for $1000. The variable cost to produce a computer, for the range of production of the firm, is $300 per unit. The total fixed costs per year to make the computer are $5.0 million.

a. How many computers must be made and sold, given this information, before the firm makes a profit?

b. How many must be made and sold to earn a $1 million pretax profit?

Business Profit:

In order to evaluate the success of a business, a firm must know its costs and revenues. To reach the point of breaking even, where the firm begins to make a profit, both fixed and variable costs must be taken into account.

Answer and Explanation: 1

Become a Study.com member to unlock this answer!

View this answer

The break-even formula is:

= fixed costs / (selling price per unit - variable cost per unit)

a. Applying the formula to the example

break-even =...

See full answer below.


Learn more about this topic:

Loading...
Target-Profit & Break-Even Analysis

from

Chapter 3 / Lesson 5
9K

Total costs are compared to total revenue and are either lower (profit), higher (loss), or equal (break-even point). Learn to calculate this and identify target profit, as well as establish a margin of safety to accommodate unanticipated risks.


Related to this Question

Explore our homework questions and answers library