The owner of a carwash pays $2,500 in rent each month, $500 in utilities, $750 interest on his loan, an insurance premium of $200, and advertising on local bus of $250 a month.A full-service car wash is priced at $10.50.Unit variable costs for the carwash are $7.50.At what level of revenue will the carwash break-even?

Question

Quizplus · Accepted Answer

The break-even point is calculated by dividing total fixed costs by the contribution margin per unit. Total fixed costs are $4,200 ($2,500 rent + $500 utilities + $750 interest + $200 insurance + $250 advertising). The contribution margin per unit is $3.00 ($10.50 price - $7.50 variable cost). The break-even point in units is $4,200 / $3.00 = 1,400 units. Therefore, the break-even revenue is 1,400 units * $10.50 = $14,700.00.

The Owner of a Carwash Pays $2,500 in Rent Each