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In order to produce a new product, a firm must lease equipment at a cost of...

In order to produce a new product, a firm must lease equipment at a cost of $195,000 per year. The managers feel that they can sell 69,000 units per year at a price of $94. What is the highest variable cost that will allow the firm to at least break even on this project? (Round your answer to 2 decimal places.

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Answer #1

Cost of equipment (Fixed Cost) = $195,000

Unit they can sell = 69,000 at a price of $94

Firm break even when Total Revenue = Total Cost

Total Cost = Fixed Cost + Variable Cost

Total Cost = 195,000 + Variable Cost

Total Cost from selling X units is 195,000 + Variable Cost * X

Total Revenue = 69,000 * 94 = 6,486,000

To break even: 6,486,000 = 195,000 + Average Variable Cost * X

6,291,000 = Variable Cost * X

Here 69,000 units are sold

Variable Cost = 91.17

Highest variable cost is $91.17 that can allow producer to break even.

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