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?
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
The break-even formula is:
= fixed costs / (selling price per unit - variable cost per unit)
a. Applying the formula to the example
See full answer below.
Become a member and unlock all Study Answers
Start today. Try it nowCreate an account
Ask a question
Our experts can answer your tough homework and study questions.Ask a question Ask a question
Learn more about this topic:
fromChapter 3 / Lesson 5
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.