Required: JZ is a musician who is considering whether to independently produce and sell a CD. JZ estimates fixed costs of $10,000 and variable costs of $4.00 per unit. The expected selling price is $12 per CD. What is JZ's break-even point in units and dollars
To calculate JZ's break-even point in units and dollars, we need to determine the number of units he needs to sell in order to cover his costs.
First, let's define the terms:
- Fixed costs: These are expenses that do not change with the number of units produced. In this case, JZ's fixed costs are $10,000.
- Variable costs: These costs vary with the number of units produced. JZ's variable cost per unit is $4.00.
- Selling price: JZ expects to sell each CD for $12.
To find the break-even point in units, we can use the following formula:
Break-even point (units) = Fixed costs / (Selling price - Variable cost per unit)
Break-even point (units) = $10,000 / ($12 - $4.00)
Break-even point (units) = $10,000 / $8.00
Break-even point (units) = 1250 units
Therefore, JZ's break-even point in units is 1250.
To find the break-even point in dollars, we can multiply the break-even point in units by the selling price:
Break-even point (dollars) = Break-even point (units) * Selling price
Break-even point (dollars) = 1250 units * $12
Break-even point (dollars) = $15,000
Therefore, JZ's break-even point in dollars is $15,000.