Ecstasy Pharmaceuticals faces fixed costs of $1,000,000 with manufacturing its new drug. The company sells the drug in bottles of 50 pills for $10.00. The company estimates that it must sell 200,000 bottles to break even. What is the total cost to produce a bottle of 50 pills?
A) $2.50
B) $5.00
C) $6.00
D) $7.50
E) not enough information to calculate

Question

Quizplus · Accepted Answer

To break even, the company must cover its fixed costs of $1,000,000 with the revenue from selling the drug.

Revenue from selling one bottle of 50 pills = $10.00/bottle * 50 pills/bottle = $500/pack

Number of bottles needed to break even = $1,000,000 / $500 per pack = 200,000 bottles

Total cost to produce 200,000 bottles = $1,000,000 fixed costs + 200,000 bottles * cost per bottle

Cost per bottle = (total cost - fixed costs) / number of bottles = ($1,000,000 - $0) / 200,000 = $5.00/bottle

Therefore, the total cost to produce a bottle of 50 pills is $5.00.

Ecstasy Pharmaceuticals Faces Fixed Costs of $1,000,000 with Manufacturing Its