Rex's doughnuts can produce only 100 doughnuts a day. The variable cost incurred per unit is $2 and fixed costs incurred per day is $500. At what price should a doughnut be sold to break even?
A) $10
B) $5
C) $7
D) $4
E) $8

Question

Quizplus · Accepted Answer

To break even, total revenue must cover total costs.
Total cost = Fixed cost + Variable cost per unit * Number of units
Total cost = $500 + $2 * 100
Total cost = $700

To cover the total cost, selling price per unit should be:

Selling price per unit = Total cost / Number of units
Selling price per unit = $700 / 100
Selling price per unit = $7

Therefore, the doughnut should be sold at $7 to break even.

Rex's Doughnuts Can Produce Only 100 Doughnuts a Day