Chapter 13, Problem 13.1WUE

Canvas Reproductions has fixed operating costs of $12,500 and variable operating costs of $10 per unit and sells its paintings for $25 each. At what level of unit sales will the company break even in terms of EBIT?

Summary Introduction

To discuss:

CR have fixed operating costs of $12,500 and variable cost of $10 per unit and sell its painting for $25 each. Required to find its breakeven point in terms of EBIT.

Introduction:

The capital structure is the company’s total finances in their total operations and growth through multiple fund sources. The debt comes through the form of bond issues and long term notes payable, while the equity is segregated as common stock, preferred and retained earnings. The short term debt like working capital requirements are considered as part of the capital structure.

Explanation of Solution

Given information that fixed cost is $12,500, selling price is $25 and the variable cost is $10

Now calculate the breakeven point of the company

$\begin{array}{l}Q=\frac{FC}{\left(P-VC\right)}\\ Q=\frac{\$12,500}{\left(\$25-\$10\right)}\\ Q=\frac{\$12,500}{\$10}\\ Q=\$833\end{array}$

Hence the total unit’s sales of the company are $\boxed{833}$