Question

Pete corporation produces bags of peanuts. It's fixed cost is $18,900. Each bag sells for $2.17 with a unit cost of $1.27. What is Pete's break even point?

Answer 1

Answer:

in units: 18,900

in dollars: $ 41,013

Step-by-step explanation:

The break even point is the sales dollar amount or sales in unit at whichthe operating income of the firm equals to zero:$\frac{Fixed\:Cost}{Contribution \:Margin} = Break\: Even\: Point_{units }$

Where:

$\frac{Contribution \: Margin}{Sales \: Revenue} = Contribution \: Margin \: Ratio$

Contribution margin:

2.17 - 1.27 = 1 dollar per unit

Break even:

$18,900 fixed cost /  $1 per unit = 18,900 units

Then, in sales:

18,900 x $2.17 each = 41.013‬

break even point:

Answer 2

Answer: Pete's corporation would break even when they sell 21000 bags of peanuts.

Step-by-step explanation:

Let x represent the number of bags of peanuts that Pete corporation would produce and sell to break even.

The fixed cost of production is $18,900 while the unit cost of producing a bag of peanut is $1.27. This means that the total cost of producing x bags of peanuts would be

1.27x + 18900

Each bag sells for $2.17. This means that the total revenue selling from x bags of peanuts would be

2.17x

At the point of break even, total cost of production = total revenue. Therefore,

1.27x + 18900 = 2.17x

2.17x - 1.27x = 18900

0.9x = 18900

x = 18900/0.9

x = 21000