Minor Video has opened a new store renting videocassettes.Fixed costs are $60,000,and the variable cost per unit is $1.50.The average sale is $5 per customer.Use the following axes to determine the break-even quantity graphically.Next,refine your solution by solving it algebraically.(Show your work for credit.)

A) The break-even quantity is fewer than or equal to 10,000 rentals.
B) The break-even quantity is more than 10,000 rentals and fewer than or equal to 20,000 rentals.
C) The break-even quantity is more than 20,000 rentals and fewer than or equal to 25,000 rentals.
D) The break-even quantity is more than 25,000 rentals.

Question

Minor Video has opened a new store renting videocassettes.Fixed costs are $60,000,and the variable cost per unit is $1.50.The average sale is $5 per customer.Use the following axes to determine the break-even quantity graphically.Next,refine your solution by solving it algebraically.(Show your work for credit.)

A) The break-even quantity is fewer than or equal to 10,000 rentals. 
B) The break-even quantity is more than 10,000 rentals and fewer than or equal to 20,000 rentals. 
C) The break-even quantity is more than 20,000 rentals and fewer than or equal to 25,000 rentals. 
D) The break-even quantity is more than 25,000 rentals.

Quizplus · Accepted Answer

To determine the break-even quantity graphically, we need to plot the total cost and total revenue functions on the same graph and identify the point where they intersect.

Total cost = fixed cost + (variable cost per unit x quantity)
Total cost = $60,000 + ($1.50 x Q)

Total revenue = average sale per customer x quantity
Total revenue = $5 x Q

Setting the total cost and total revenue functions equal to each other, we get:

$60,000 + ($1.50 x Q) = $5 x Q

$60,000 = $3.50 x Q

Q = 17,143

Therefore, the break-even quantity is more than 10,000 rentals and fewer than or equal to 20,000 rentals.

Minor Video Has Opened a New Store Renting Videocassettes