A computer manufacturing business is planning to open a new factory. It will have annual fixed costs of $1m. The average variable cost of each computer will be $100 and the business plans to sell them for $350 each. The expected break-even level of output will be arrow_drop_down units per year.
Question
A computer manufacturing business is planning to open a new factory. It will have annual fixed costs of 100 and the business plans to sell them for $350 each. The expected break-even level of output will be arrow_drop_down units per year.
Solution
The break-even point is the level of output at which total revenues equal total costs. It can be calculated using the formula:
Break-even point (in units) = Total Fixed Costs / (Selling Price per unit - Variable Cost per unit)
Given in the problem:
Total Fixed Costs = 350 Variable Cost per unit = $100
Substituting these values into the formula, we get:
Break-even point = 350 - 1,000,000 / $250 Break-even point = 4,000 units
So, the business would need to sell 4,000 computers per year to break even.
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