If a flip flop shoe manufacturer has fixed costs of $40,000, a unit selling price of $10, and a variable cost per unit of $6, its break-even point in units is
A) 13,000.
B) 3,000.
C) 10,000.
D) impossible to tell without more data.
E) 2,500.

Question

Quizplus · Accepted Answer

To find the break-even point, we need to determine at what quantity the total revenue equals the total cost.

Total Cost = Fixed Cost + Variable Cost
Total Cost = $40,000 + ($6/unit)Q

Total Revenue = Selling Price x Quantity
Total Revenue = $10/unit x Q

Break-even point occurs when Total Revenue = Total Cost:
$10Q = $40,000 + $6Q
$4Q = $40,000
Q = 10,000 units

Therefore, the break-even point in units is 10,000.

If a Flip Flop Shoe Manufacturer Has Fixed Costs of $40,000