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March 25, 2017

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The Oliver Company plans to market a new product. Based on its market studies, Oliver estimates that it can sell up to 4,500 units in 2005. The selling price will be $2 per unit. Variable costs are estimated to be 20% of total revenue. Fixed costs are estimated to be $6,400 for 2005. How many units should the company sell to break even?

How do I calculate the units to break even? What type of formula do I use?

  • Algebra - ,

    revenue = units * price/unit
    r = 2x for x units

    var cost = .2r
    fix cost = 6400

    total cost c = 6400 + .2(2x)
    total revenue = 2x

    breakeven when cost = revenue
    2x = 6400 + .4x
    1.6x = 6400
    x = 4000

    so, at 4000 units,

    revenue = 8000
    cost = 6400 + .2(8000) = 8000

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