The Francesco Company produces spaghetti sauce that is used in restaurants. The fixed costs total $1,329,050. The selling price per 64 oz. can of sauce is $12.40. The variable cost per can is $4.80. What is the break-even point in number of cans?
break-even is when cost = revenue, so
1329050 + 4.80x = 12.40x
I just don't get it
To find the break-even point in the number of cans, we need to calculate the number of cans that need to be sold in order to cover the fixed costs. In this case, we can use the formula:
Break-even point (in units) = Fixed costs / (Selling price per unit - Variable cost per unit)
Given:
Fixed costs = $1,329,050
Selling price per can = $12.40
Variable cost per can = $4.80
Let's substitute the values into the formula:
Break-even point (in units) = $1,329,050 / ($12.40 - $4.80)
Break-even point (in units) = $1,329,050 / $7.60
Now, we can divide the fixed costs by the difference in the selling price per can and the variable cost per can:
Break-even point (in units) = 174,934.21
Since we cannot sell a fraction of a can, we need to round up to the nearest whole number to get a realistic and achievable break-even point. Therefore, the break-even point in the number of cans is approximately 174,935 cans.
what's the trouble? They said that there is a fixed cost of $1329050, regardless of how many cans are made. That's rent, payroll, etc.
Add to that a variable cost, which depends on the number of cans. $4.80 for each can.
So, the total cost for x cans is 1329050 + 4.80x
The revenue is the sales of the cans. Each can sells for $12.40, so if they sell all x cans, they get 12.40x dollars.
Now set cost=revenue to get the break-even.
You clearly need to review the material in this chapter of your text.