month,the owner of a carwash 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 carwash 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

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

Total Fixed Costs (TFC) = Rent + Utilities + Interest + Insurance + Advertising 
TFC = $2,500 + $500 + $750 + $200 + $250 = $4,200

Unit Contribution Margin (UCM) = Selling Price - Unit Variable Costs 
UCM = $10.50 - $7.50 = $3

Break-even point can be calculated by dividing the total fixed costs by the unit contribution margin.

Break-even Point (BEP) = TFC / UCM 
BEP = $4,200 / $3 = $1,400

Therefore, the carwash needs to generate $1,400 in revenue per month to break even.

Option C, $14,700, is the closest to this number, making it the best choice.

Month,the Owner of a Carwash Pays $2,500 in Rent,$500 in Utilities,$750