Citizen sells a watch for $35 at a fixed cost of $1 million per annum. Recent recession has seen jump in material cost to $20. What is the new break-even volume of watches per year?
A) 28 571
B) 50 000
C) 66 667
D) 6667
E) 7000

Question

Quizplus · Accepted Answer

The break-even volume can be calculated using the following formula:

Break-even volume = Fixed cost / (Selling price per unit - Variable cost per unit)

Selling price per unit = $35
Variable cost per unit = $20

Fixed cost = $1 million

Substituting these values in the formula, we get:

Break-even volume = $1,000,000 / ($35 - $20)
Break-even volume =  $1,000,000 / $15
Break-even volume =  66,667

Therefore, the new break-even volume of watches per year is 66,667 or choice C.

Citizen Sells a Watch for $35 at a Fixed Cost