Question

Suppose the firm you're working for is doing break-even analysis. However, they are interested in the price they need to charge to cover their costs given some quantity of production. Specifically, the firm has yearly fixed costs of $1500, marginal costs of $0.50 per unit, and is producing 1000 units per year. What price do they need to charge to break even?

Answer 1

Selling price to be at break even is $ 2.00 per unit

The explanation is as follows:

Number of units produced: 1,000 units per year

Fixed cost: $ 1,500

Variable cost: $ 0.50 per unit

Total variable cost:1,000 units @ 0.50 per unit = $ 500

Total cost: Fixed cost + variable cost = $ 1,500 + $ 500= $ 2,000

Therefore, to be at break-even, the firm sales should be of $ 2,000 (i.e. equal to total cost) after selling 1,000 units

Therefore, Selling price for break-even = Total sales / total units = $ 2,000 / 1,000 units = $ 2.00 per unit