Fixed costs are $300,000 and the variable costs are 75% of the unit selling price. What is the break-even point in dollars?
A) $700,000
B) $900,000
C) $1,200,000
D) $400,000

Question

Quizplus · Accepted Answer

The break-even point is where total revenue equals total costs, or in equation form: 
TR = TC

TR = Q * P (total revenue = quantity sold * price per unit) 
TC = FC + (Q * VC) (total cost = fixed costs + quantity sold * variable cost per unit)

Given: 
FC = $300,000 
VC = 0.75P

Substitute in the equations for TR and TC:

Q * P = $300,000 + Q * 0.75P

Simplify:

Q * 0.25P = $300,000

Q = $300,000 / 0.25P 
Q = $1,200,000 / P

This means that the break-even point is $1,200,000 in sales. Therefore, the correct answer is C.

Fixed Costs Are $300,000 and the Variable Costs Are 75