Question

Pearson Collections (PC) sells one-pound cans of coffee for $25 each. The variable cost to produce each can is $17.50, and fixed operating costs are $1,500. PC normally sells 30,000 pounds of coffee each year, has an interest expense equal to $300, and its marginal tax rate is 40 percent. Given this information, what is PC’s operating breakeven point?

Answer 1

Answer:

200 cans

Explanation:

Given that,

Selling price per can = $25

Variable cost = $17.50 each can

Fixed operating costs = $1,500

Marginal tax rate = 40 percent

Profit per unit = Selling price - Variable cost

                         = $25 - $17.50

                         = $7.50

PC’s operating break-even point:

= Fixed cost ÷ Profit per unit

= $1,500 ÷ $7.50

= 200 cans