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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?

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sqdancefan

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Answer:

  1125

Step-by-step 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.

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