Asked by Brandon Ramdeholl on May 20, 2024
Verified
A business produces 4,000 units per month which it sells at $20/unit.Costs include: $10,000 on raw materials,$15,000 in wages for operators and $10,000 in wages to sales people.If the business is just breaking even,what are its fixed costs:
A) $35,000
B) $40,000
C) $45,000
D) $50,000
Raw Materials
The basic materials from which products are made, often extracted from natural resources and used in manufacturing processes.
Breaking Even
The point at which total revenues equal total costs, resulting in no net loss or gain.
Fixed Costs
Expenses that do not change with the amount of goods or services produced by a business.
- Understand the concept of fixed, variable, and marginal costs in business operations.
- Define and work out the break-even units and explore its implications for strategic planning in business.
Verified Answer
JN
Jamie NoonooMay 26, 2024
Final Answer :
C
Explanation :
To break even, the total revenue should be equal to the total cost.
Total revenue = 4,000 units/month × $20/unit = $80,000/month
Total cost = Fixed cost + Variable cost
Variable cost = Cost of raw materials + Wages for operators + Wages to sales people = $10,000 + $15,000 + $10,000 = $35,000/month
To find the fixed cost, we set the total cost equal to the total revenue:
Fixed cost + $35,000/month = $80,000/month
Fixed cost = $45,000/month
Therefore, the best choice is C) $45,000.
Total revenue = 4,000 units/month × $20/unit = $80,000/month
Total cost = Fixed cost + Variable cost
Variable cost = Cost of raw materials + Wages for operators + Wages to sales people = $10,000 + $15,000 + $10,000 = $35,000/month
To find the fixed cost, we set the total cost equal to the total revenue:
Fixed cost + $35,000/month = $80,000/month
Fixed cost = $45,000/month
Therefore, the best choice is C) $45,000.
Learning Objectives
- Understand the concept of fixed, variable, and marginal costs in business operations.
- Define and work out the break-even units and explore its implications for strategic planning in business.