A pottery manufacturer is conducting a breakeven analysis.Its line of strawberry pots has $18,000 in fixed costs.The fixed-cost contribution is $3.The pottery manufacturer must sell which of the following number of units to break event?
A) 3,000
B) 1,000
C) 10,000
D) 6,000

Question

Quizplus · Accepted Answer

To determine the breakeven point, we need to set the total cost equal to the total revenue:

Total Cost = Total Revenue
Fixed Cost + Variable Cost = Price x Quantity

Let Q be the quantity of strawberry pots sold.

Fixed Cost = $18,000
Variable Cost = $3 per unit
Price = Unknown
Quantity = Q units

Fixed Cost + Variable Cost = Price x Quantity
$18,000 + $3Q = Price x Q

We need to find the quantity Q that will make the two sides equal. We can do this by solving for Q:

$18,000 + $3Q = Price x Q
$18,000 = Q x (Price - $3)
Q = $18,000 / (Price - $3)

We know that the variable cost contribution is $3 per unit, so the price must be at least $3 higher than the variable cost. Let's assume that the price is $6 per unit. Then:

Q = $18,000 / ($6 - $3) = 6,000

Therefore, the pottery manufacturer must sell 6,000 units of strawberry pots to break even.

A Pottery Manufacturer Is Conducting a Breakeven Analysis