A company faces fixed costs of $100,000 and variable costs of $8 per unit. It plans to directly sell its product in the market for $12. How many units must it produce and sell to break even?
A) 20,000
B) 25,000
C) 30,000
D) 35,000
E) 40,000

Question

Quizplus · Accepted Answer

To calculate the break-even point, we need to find out how many units the company needs to sell to generate enough revenue to cover both fixed and variable costs.

Let x be the number of units the company needs to produce and sell to break even.

Total cost = Fixed cost + Variable cost 
Total revenue = Selling price x Number of units sold

At the break-even point, total cost = total revenue

Therefore:

100,000 + 8x = 12x

4x = 100,000

x = 25,000

Thus, the company needs to produce and sell 25,000 units to break even.

A Company Faces Fixed Costs of $100,000 and Variable Costs