Firm B produce gadgets.The price of gadgets is $2 each.Firm B has total fixed costs of $300,000 and variable costs of $1.40 per gadget.The corporate tax rate is 40%.What is the breakeven number of gadgets B must sell to make a zero after tax profit?

Question

Quizplus · Accepted Answer

The breakeven point is the point at which the total revenue earned equals the total cost incurred.

Let x be the number of gadgets B must sell to break even.

Total Revenue = Price x Quantity = $2x

Total Cost = Fixed Cost + Variable Cost = $300,000 + $1.40x

At breakeven point, Total Revenue = Total Cost

$2x = $300,000 + $1.40x

$0.60x = $300,000

x = 500,000

Therefore, the breakeven number of gadgets B must sell to make a zero after tax profit is 500,000.

Firm B Produce Gadgets