Break-even analysis. A cement contractor has determined that he is better off buying a large cement truck if he is able to sell more than 500 yards of cement per month. The price of a yard of cement is $60, and the variable costs for a large truck are $20 per yard. The variable costs for a small truck are $40 per yard, and the fixed costs for the small truck are $10,000. What are the fixed costs associated with the large truck?
A) $0
B) $10,000
C) $20,000
D) $30,000

Question

Quizplus · Accepted Answer

The break-even point for the large truck is when selling more than 500 yards. The cost difference per yard between the large and small truck is $20 ($40 - $20). To cover the $10,000 fixed costs of the small truck, the large truck must have fixed costs of $20,000 (500 yards * $20).

Break-Even Analysis