your company produces designer dog-leashes. the marginal costs are $4.50 per leash and each leash is sold for $12.00. You need to produce and sell 75 dog leashes per month in order to break even. Based on this information, what are your monthly fixed costs?
To find the monthly fixed costs, we need to start by understanding the concept of break-even point.
The break-even point is the level of output or sales at which the total revenue equals the total cost, resulting in zero profit or loss. At this point, the company neither makes a profit nor incurs a loss.
In this scenario, we know that the marginal cost per leash is $4.50 and each leash is sold for $12.00. The break-even point is when the company sells 75 dog leashes per month.
To calculate the total cost at the break-even point, we can use the formula:
Total Cost = Fixed Costs + (Marginal Cost * Quantity)
Let's plug in the values:
$0 (since there's no profit or loss at the break-even point) = Fixed Costs + ($4.50 * 75)
$0 = Fixed Costs + $337.50
Now, we can isolate the fixed costs:
Fixed Costs = $0 - $337.50
Fixed Costs = -$337.50
However, fixed costs cannot be negative. A negative fixed cost implies that the company is making a profit at the break-even point, which contradicts the concept of break-even.
So, in this case, we can conclude that there is an error either in the information provided or in the calculations. It is not possible to determine the monthly fixed costs based on the given data.