Break-even analysis. Markovian Caviar Sales has discovered that the extent of the demand for its caviar harvest is 20,000 tins per year. If the fixed costs for the new product are $2,300,000 and the variable harvest cost per tin is $35, then what price can Markovian charge per tin if the firm needs to break even on a pretax operating cash flow basis?

Question

Quizplus · Accepted Answer

The formula for calculating the break-even point in units is:

Break-even point (units) = Fixed costs / (Selling price per unit - Variable cost per unit)

Let X be the selling price per tin. Then, we can set up an equation to solve for X:

20,000X = 2,300,000 + 20,000($35)
20,000X = 3,000,000
X = $150 per tin

Therefore, Markovian Caviar Sales can charge $150 per tin to break even on a pretax operating cash flow basis. The correct choice is B.

Break-Even Analysis