A firm has contracted to supply 500,000 gallons of propane fuel for $1.49 million to the local municipality.The municipality wants to break the contract.What does the minimum current market price of propane need to be in order for the firm to benefit from breaking the contract?
A)greater than $2.97 per gallon
B)greater than $2.98 per gallon
C)greater than $2.99 per gallon
D)greater than $3.00 per gallon

Question

Quizplus · Accepted Answer

To determine the breakeven point, we need to divide the total cost of the contract by the number of gallons to find the cost per gallon. 
Total cost/gallons = $1,490,000/500,000 = $2.98 per gallon.
Therefore, the minimum current market price must be greater than $2.98 per gallon for the firm to benefit from breaking the contract. The closest option is B) greater than $2.98 per gallon.

A Firm Has Contracted to Supply 500,000 Gallons of Propane