WayFair Clothing has total fixed costs of $34,000 per month.It sells a single product with variable costs of $5.60 per unit.If 8,000 units can be sold this month, what price must Wayfair charge in order to break-even?

Question

Quizplus · Accepted Answer

To break-even, the total revenue generated from selling the product must cover both the fixed costs and the variable costs.

Total Cost = Fixed Cost + Variable Cost

Variable Cost = $5.60 per unit 
Fixed Cost = $34,000 per month 
Units Sold = 8,000

Total Cost = $34,000 + ($5.60 x 8,000) 
Total Cost = $34,000 + $44,800 
Total Cost = $78,800

To break-even, WayFair Clothing must generate $78,800 in revenue.

Revenue = Price x Units Sold

Price = Revenue / Units Sold

Price = $78,800 / 8,000 
Price = $9.85

Therefore, WayFair Clothing must charge $9.85 per unit in order to break-even.

WayFair Clothing Has Total Fixed Costs of $34,000 Per Month