You set up a business and make an initial investment of $10,000. The unit cost of the product is $2.85 and the selling price is $4.95. How many units must you sell to break even?
10,000 / 2.10 = ?
profit per unit = 2.10
2.10 x = 10,000
4762
To calculate the breakeven point, we need to consider both fixed costs and variable costs.
1. Calculate the fixed costs:
- In this case, the fixed cost is the initial investment, which is $10,000.
2. Calculate the variable cost per unit:
- The variable cost per unit is the unit cost of the product, which is $2.85.
3. Calculate the contribution margin per unit:
- The contribution margin is the selling price minus the variable cost per unit.
- Contribution Margin = Selling Price - Variable Cost per Unit
- Contribution Margin = $4.95 - $2.85
- Contribution Margin = $2.10
4. Calculate the breakeven point in units:
- Breakeven Point (in units) = Fixed Costs / Contribution Margin per Unit
- Breakeven Point (in units) = $10,000 / $2.10
- Breakeven Point (in units) = 4761.90
Therefore, you would need to sell approximately 4,762 units to break even.
To determine how many units you must sell to break even, you need to calculate the break-even point, which is the point at which your total revenue equals your total costs.
First, let's calculate the total cost. The unit cost of the product is $2.85, and you made an initial investment of $10,000. The initial investment should be considered as a fixed cost since it doesn't change with the number of units sold.
Total Fixed Costs = Initial Investment = $10,000
Next, we need to calculate the variable costs per unit. Since the unit cost of the product is $2.85, we deduct the unit cost from the selling price to get the variable cost per unit:
Variable Cost per Unit = Selling Price - Unit Cost = $4.95 - $2.85 = $2.10
Now, we can calculate the break-even point using the following formula:
Break-even Point (in units) = Total Fixed Costs / (Selling Price per Unit - Variable Cost per Unit)
Break-even Point (in units) = $10,000 / ($4.95 - $2.10)
Calculating this equation, we get:
Break-even Point (in units) = $10,000 / $2.85
Dividing $10,000 by $2.85 gives us approximately 3,508.77.
Therefore, to break even, you would need to sell approximately 3,509 units of the product.