Inmelt Corp charges price of $6.50. Total Fixed Cost is 314,400. per year, break-even point is 131,000 units. What is the variable cost per unit.
To find the variable cost per unit, we can use the formula for the break-even point. The break-even point is the quantity of units at which the company's total revenue equals its total costs, resulting in neither profit nor loss.
Break-even point formula:
Total Fixed Cost + (Variable Cost per Unit x Quantity) = Total Revenue
Given information:
Total Fixed Cost = $314,400
Break-even point Quantity = 131,000 units
Price per unit (Total Revenue per unit) = $6.50
Rewriting the formula using the given information:
$314,400 + (Variable Cost per Unit x 131,000) = $6.50 x 131,000
Let's solve for the Variable Cost per Unit:
Multiply the price per unit by the break-even point quantity:
$6.50 x 131,000 = $853,000
Subtract the Total Fixed Cost from the Total Revenue:
$853,000 - $314,400 = $538,600
Divide the above result by the break-even point quantity:
$538,600 / 131,000 = $4.11
Therefore, the variable cost per unit is $4.11.