Question

# MY NOTES Hasbro has conducted market research and found that setting their price for a Furby...

MY NOTES Hasbro has conducted market research and found that setting their price for a Furby at \$30 is optimal. The company has fixed costs at \$50,000 and it costs \$6 per Furby to produce. How many furbies does Harbo need to make to break-even? furbies (round to the nearest whole number)

Solution :

The formula for calculating the break even quantity of production is

Break even quantity = Fixed cost / Contribution margin per unit

= Fixed costs / ( Sales price per unit – Variable cost per unit )

As per the information given in the question we have

Variable cost per unit = \$ 6   ;   Sales price = \$ 30 ;    Fixed costs = \$ 50,000 ;

Applying the above information in the formula we have the break even quantity as

= \$ 50,000 / ( \$ 30 - \$ 6 )

= \$ 50,000 / \$ 24

= 2,083.33

= 2,083 ( when rounded to the nearest whole number )

Thus Harbo needs to make 2,083 furbies to break – even.

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