Each month,the owner of a car wash pays $2,500 in rent,$500 in utilities,$750 interest on the business loan,an insurance premium of $200,and $250 on advertising on local bus routes.A full-service car wash is priced at $10.0.0.0.0.50.Unit variable costs for the car wash are
$7)50.At what level of revenue will the car wash break even?

Question

Quizplus · Accepted Answer

To break even, the total costs must be equal to the total revenue.

Total fixed costs:

Rent = $2,500 
 Utilities = $500 
 Interest on business loan = $750 
 Insurance premium = $200 
 Advertising = $250

Total fixed costs = $4,200

Unit variable costs = $7.50

To break even:

Revenue - Total variable costs - Total fixed costs = 0

$10.00x - ($7.50x + $4,200) = 0

$2.50x = $4,200

x = $1,680

Therefore, the car wash must generate $14,700 ($1,680 divided by 0.10) in revenue to break even. Since this is an option in the answer choices, the correct answer is C.

Each Month,the Owner of a Car Wash Pays $2,500 in Rent,$500