The fixed cost related to the production of a product is $500,000 per year. Assume that the variable cost is $20,000 and the sell- ing price is $30,000 for each percentage point of annual output capacity (which equals sales demand). Thus, the maximum sales per year are * $3,000,000 (at 100% of output capacity), and we have: (2.3)

The fixed cost related to the production of a product is $500,000 per year. Assume that the variable cost is $20,000 and the sell- ing price is $30,000 for each percentage point of annual output capacity (which equals sales demand). Thus, the maximum sales per year are * $3,000,000 (at 100% of output capacity), and we have: (2.3)

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter8: Cost Analysis

Section: Chapter Questions

Problem 9E

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Question

The fixed cost related to the production
of a product is $500,000 per year. Assume
that the variable cost is $20,000 and the sell-
ing price is $30,000 for each percentage point
of annual output capacity (which equals sales
demand). Thus, the maximum sales per year are
$3,000,000 (at 100% of output capacity), and we
have: (2.3)
C; = $500,000 per year
C, $20,000/1% of annual
output capacity
(Fixed cost)
(Variable
cost/unit)
p = $30,000/1%' of annual
output capacity
(Selling
price/unit)
a. Determine the breakeven point for this situ-
ation.

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