Pary's doughnuts can produce only 100 doughnuts a day.The variable cost incurred per unit is $2 and fixed costs incurred per day is $500.At what price should a doughnut be sold to break even?
A)$10
B)$5
C)$7
D)$4
E)$8

Question

Quizplus · Accepted Answer

To break even, the total revenue earned must cover the total cost incurred. The total cost incurred is the sum of the variable cost per unit and fixed cost per day. Since the variable cost per unit is $2 and 100 doughnuts are produced per day, the total variable cost per day is $200. Adding this to the fixed cost of $500 gives a total cost of $700 per day.

To break even, the revenue earned per day must also be $700. Since only 100 doughnuts can be produced per day, the price per doughnut should be set at $7 to generate $700 in revenue per day (100 x $7 = $700).

Therefore, the best choice is C.

Pary's Doughnuts Can Produce Only 100 Doughnuts a Day