Question

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)

Answer 1

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.