   Chapter 14, Problem 1P Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

Solutions

Chapter
Section Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

BREAK-EVEN ANALYSIS A company’s fixed operating costs are $500,000, its variable costs are$3.00 per unit, and the product’s sales price is $4.00. What is the company’s break-even point; that is, at what unit sales volume will its income equal its costs? Summary Introduction To identify: The break-even point. Break-Even Analysis: Break-even point refers to that amount, which doesn’t have an outcome of profit or loss and the difference of total revenue and expense is zero. Break-even analysis helps to find that level of sale through which the company can recover its cost and have no loss. Explanation Given, The fixed cost is$500,000.

The sales price per unit is $4. The variable cost per unit is$3.

Formula to calculate the break-even point,

Break-evenpoint=Fixedcost(SalespriceperunitVariablecostperunit)

Substitute $500,000 for fixed cost,$4 for sales price per unit and \$3 for variable cost per unit

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