Production has indicated that they can produce widgets at a cost of $4.00 each if they lease new equipment at a cost of $10,000. Marketing has estimated the number of units they can sell at a number of prices (shown below). Which price/volume option will allow the firm to avoid losing money on this project?
A) 4,000 units at $5.00 each.
B) 3,000 units at $7.50 each.
C) 1,500 units at $10.00 each.
D) 1,000 units at $15.00 each
E) 25,000 units.

Question

Quizplus · Accepted Answer

To avoid losing money, the total revenue must cover both the variable costs of production and the fixed cost of leasing the equipment. Option B, selling 3,000 units at $7.50 each, generates $22,500 in revenue. The cost of producing 3,000 units at $4.00 each is $12,000, and when added to the lease cost of $10,000, the total cost is $22,000. This option generates a profit of $500, thus avoiding a loss.

Production Has Indicated That They Can Produce Widgets at a Cost