A pie company has two employees who each earn $30 000 a year, and it pays $10 000 rent every year. The ingredients for a pie, including the gas to cook it, cost $10 per pie. If the company is taxed at 50% and pies are sold at $20 each, the break-even point for the company (calculated after-tax)is
A)3 500 pies.
B)4 000 pies.
C)6 000 pies.
D)7 000 pies.
E)8 000 pies.

Question

Quizplus · Accepted Answer

First, calculate the total fixed costs: $30,000 (employee 1) + $30,000 (employee 2) + $10,000 (rent) = $70,000. The variable cost per pie is $10. The selling price per pie is $20, so the gross profit per pie is $20 - $10 = $10. To find the break-even point before tax, divide the total fixed costs by the gross profit per pie: $70,000 / $10 = 7,000 pies. Since the company is taxed at 50%, the net profit needed to cover the fixed costs doubles. Therefore, the break-even point remains 7,000 pies because the tax affects both the cost and revenue sides equally, meaning the calculation based on gross profit per pie already accounts for the tax impact.

A Pie Company Has Two Employees Who Each Earn $30