A new company to produce state-of-the-art car stereo systems is being considered
ID: 2648838 • Letter: A
Question
A new company to produce state-of-the-art car stereo systems is being considered by Jagger Enterprises. The sales price would be set at 2.5 times the variable cost per unit; the VC/unit is estimated to be $2.50; and fixed costs are estimated at $220,000. What sales volume would be required in order to break even, i.e., to have an EBIT of zero for the stereo business?
a.
86,640 units
b.
58,667 units
c.
96,667 units
d.
10,080 units
e.
15,840 units
A new company to produce state-of-the-art car stereo systems is being considered by Jagger Enterprises. The sales price would be set at 2.5 times the variable cost per unit; the VC/unit is estimated to be $2.50; and fixed costs are estimated at $220,000. What sales volume would be required in order to break even, i.e., to have an EBIT of zero for the stereo business?
a.
86,640 units
b.
58,667 units
c.
96,667 units
d.
10,080 units
e.
15,840 units
Explanation / Answer
Break even point is hwere the total revneu is equal o the total cost. Let q be the breakeven quantity:
2.5(2.5) = sales price
Total revenue = price x quantity
total revenue =6.25x q
=6.25q
Total cost = variable cost +fixed cost
total cost = 2.5q+220000
total revenue= total cost
=6.25q = 2.5q+220000
3.75q=220000
q=58666.67
The break even quantity is 58666.67
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