Mix Sweet Shop bakes and sells pies.Mix has annual fixed costs of $880,000 and a variable cost per pie of $7.50.Each pie sells for $15.50 each.The firm expects to sell 500,000 pies annually.What is the break-even point in sales dollars?
A) $3,100,000
B) $2,875,000
C) $1,705,000
D) $1,625,000

Question

Quizplus · Accepted Answer

To find the break-even point, we need to calculate the total revenue needed to cover the fixed costs and variable costs.

Total cost = Fixed cost + Variable cost 
Variable cost = Cost per pie * Number of pies 
Variable cost = $7.50 * 500,000 = $3,750,000

Total cost = $880,000 + $3,750,000 = $4,630,000

To break even, the total revenue should be equal to the total cost.

Total revenue = Selling price per pie * Number of pies 
Total revenue = $15.50 * 500,000 = $7,750,000

Therefore, the break-even point in sales dollars is $4,630,000, which is closest to answer choice C ($1,705,000).

Mix Sweet Shop Bakes and Sells Pies