Question

You are starting a part-time business. You make an initial investment of $3,000. The unit cost of the product is $6.70, and the selling price is $12.95.

(a) Find equations for the total cost C (in dollars) for x units.

C(x) =?

(b) Find the break-even point (in units).

(c) How many units would yield a profit of $1,500?

Answer 1

Initial investment ( Fixed coat ) = $3,000

Unit cost of product ( Variable cost ) = $6.70

Unit selling price= $12.95

(a) Equation of total cost

C(x) = $3,000 + (6.70 * x)

(b) Break even point units = Fixed cost / Contribution per unit

Contribution per unit = Sales - Variable cost

= 12.95 - 6.70

= $6.25

Break even point = 3,000 / 6.25

Break even point ( in units) = 480 units

(c) Estimated profit = $1,500

Units to be sold to yield. Profit of 1,500 = Fixed cost + 1,500 / contribution per unit

= (3,000 + 1,500) / 6.25

= 720 units

720 units have to be sold to yield a profit of $1,500