Question

The Metropolitan Company sells its latest product at a unit price of $7. Variable costs are estimated to be 20% of the total revenue, while fixed costs amount to $6,300 per month. How many units

should the company sell per month to break even, assuming that it can sell up to 5,000 units per month at the planned price?

Answer 1

9514 1404 393

Answer:

1125

Explanation:

The "contribution margin" of each product is 80% of its unit price, or $5.60. In order to break even, the total contribution margin must match the fixed costs.

$5.60n = $6300

n = 6300/5.6 = 1125

The company should sell 1125 units per month to break even.