Asked by Julian Torres on May 11, 2024
Verified
A small company can produce 500 dolls per week. The doll retails for $30. The variable costs are $7.50 per doll and fixed costs are $9,000 per week. What is the break-even point expressed as a percent of capacity?
A) 75%
B) 80%
C) 70%
D) 85%
E) 65%
Break-even Point
The point at which cost or expenses and revenue are equal, resulting in neither profit nor loss.
Variable Costs
Expenses that change in proportion to the activity of a business, such as costs for raw materials.
Fixed Costs
Expenditures that do not change over a short period of time, regardless of the level of production or activity.
- Understand and calculate break-even points in units and dollars.
- Analyze the effects of capacity utilization on net income and break-even points.
Verified Answer
AA
Amanda AlfonsoMay 12, 2024
Final Answer :
B
Explanation :
The break-even point in units is found by dividing the fixed costs by the contribution margin per unit (price - variable costs). Here, it's $9,000 / ($30 - $7.50) = $9,000 / $22.50 = 400 units. To find the break-even point as a percent of capacity, divide the break-even point in units by the total capacity and multiply by 100. Thus, (400 / 500) * 100 = 80%.
Learning Objectives
- Understand and calculate break-even points in units and dollars.
- Analyze the effects of capacity utilization on net income and break-even points.