The Acme Flashlight Company breaks even at 20,000 flashlights at $6 each, with the average variable cost per flashlight of $4. The amount of its fixed costs is:
A) $20,000
B) $40,000
C) $60,000
D) $80,000

Question

Quizplus · Accepted Answer

Fixed costs can be calculated by subtracting total variable costs from total revenue at the break-even point. Total revenue at the break-even point is 20,000 flashlights * $6/flashlight = $120,000. Total variable costs are 20,000 flashlights * $4/flashlight = $80,000. Therefore, fixed costs = $120,000 - $80,000 = $40,000.

The Acme Flashlight Company Breaks Even at 20,000 Flashlights at $6