A manager has determined that a potential new product can be sold at a price of $20.00 each. The cost to produce the product is $10.00, but the equipment necessary for production must be leased for $75,000 per year. What is the break-even point?
A) 2,500 units.
B) 5,000 units.
C) 7,500 units.
D) 10,000 units.
E) 25,000 units.

Question

Quizplus · Accepted Answer

To find the break-even point, we need to determine how many units need to be sold to cover the costs of production, including the equipment lease.

Let's first calculate the total cost of leasing the equipment for one unit:

$75,000 / 12 months = $6,250 per month
$6,250 / 10,000 units = $0.625 per unit

Now we can calculate the total cost per unit:

$10.00 (cost of production) + $0.625 (cost of equipment lease) = $10.625

To break even, the revenue from selling each unit must cover this cost. Since each unit can be sold at a price of $20.00, the profit per unit would be:

$20.00 - $10.625 = $9.375

To cover the $75,000 equipment lease, we need to generate:

$75,000 / $9.375 = 8,000 units

Therefore, the break-even point is 7,500 units.

A Manager Has Determined That a Potential New Product Can