If a firm has a price of $6.00, variable cost per unit of $4.00 and a breakeven point of 40,000 units, fixed costs are equal to:
A) $27,000
B) $90,000
C) $80,000
D) $50,000

Question

Quizplus · Accepted Answer

Breakeven point is the point where total revenue is equal to total costs, and there are no profits or losses. At the breakeven point:

Total Revenue = Total Cost
Price x Quantity = Variable Cost per unit x Quantity + Fixed Costs

We know that price per unit is $6.00, variable cost per unit is $4.00, and the breakeven quantity is 40,000 units.

Therefore,

$6.00 x 40,000 = $4.00 x 40,000 + Fixed Costs
Fixed Costs = ($6.00 x 40,000) - ($4.00 x 40,000) = $80,000

Hence, the fixed costs are $80,000, which is the answer choice C.

If a Firm Has a Price of $6