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In order to produce a new product, a firm must lease equipment at a cost of $115,000 per year. The managers feel that they can sell 53,000

In order to produce a new product, a firm must lease equipment at a cost of $115,000 per year. The managers feel that they can sell 53,000 units per year at a price of $78. 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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Expert Solution

Let the variable cost be x

At Break even point, Total revenue = Total cost

Sales*Selling price = Fixed cost+ sales* Variable cost per unit

 53000*78 = 115000+ 53000x

4134000 = 115000+ 53000x

x =(4134000-115000)/53000

x =4019000/53000

x =$ 75.83 

 

Break even variable cost = $75.83.

 

Hence, Break even variable cost is $75.83.

Break even variable cost = $75.83.

Umair answered 1 year ago
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