If a firm has fixed costs of $20,000, variable cost per unit of $.50, and a breakeven point of 5000 units, the price is?
To find the price, we need to understand the concept of the breakeven point and how it relates to costs.
The breakeven point is the level of production or sales at which a company's total revenue equals its total costs, resulting in neither profit nor loss. It can be calculated by dividing the fixed costs by the contribution margin per unit, where the contribution margin is the selling price per unit minus the variable cost per unit.
To calculate the breakeven point, we can use the formula:
Breakeven Point (in units) = Fixed Costs / Contribution Margin per Unit
Given that you have the fixed costs of $20,000 and a breakeven point of 5000 units, we can plug in these values into the formula and solve for the contribution margin per unit.
5000 = $20,000 / Contribution Margin per Unit
Now, to find the contribution margin per unit, we need to determine the variable cost per unit. From the given information, the variable cost per unit is $0.50.
Contribution Margin per Unit = Selling Price per Unit - Variable Cost per Unit
We can rewrite this equation as:
Contribution Margin per Unit = Selling Price per Unit - $0.50
Now we can rearrange the equation to solve for Selling Price per Unit:
Selling Price per Unit = Contribution Margin per Unit + $0.50
To find the contribution margin per unit, we can use the formula:
Contribution Margin per Unit = Total Revenue per Unit - Total Variable Cost per Unit
We know that Total Variable Cost per Unit is $0.50, so the formula becomes:
Contribution Margin per Unit = Selling Price per Unit - $0.50
Plugging in the value of the variable cost per unit, we have:
Contribution Margin per Unit = Selling Price per Unit - $0.50
5000 = $20,000 / (Selling Price per Unit - $0.50)
Now we can solve for the Selling Price per Unit:
Selling Price per Unit = ($20,000 / 5000) + $0.50
Selling Price per Unit = $4 + $0.50
Selling Price per Unit = $4.50
Therefore, the price per unit is $4.50.