Question

Suppose you are the owner of a picture frame store and your current fixed costs total $50,000 (real estate taxes, interest on a bank loan, etc.).
In addition, your current unit variable cost for a picture is $50( which includes labor, glass, frame, and matting).

Calculate the price necessary to break-even by selling a quantity of 1,000 frames.

Answer 1

Answer:

$100

Explanation:

Given that,

Total fixed cost = $50,000

Break even units = 1,000

Variable cost per unit = $50

Break even Units = Fixed Cost ÷ Contribution Per unit

Contribution Per unit = Fixed Cost ÷ Break even Units

                                   = $50,000 ÷ 1,000

                                   = $50

Sales - Variable Cost = Contribution per unit

Sales - $50 = $50

Sales price per unit = $50 + $50

                                 = $100

Therefore, the price necessary to break-even by selling a quantity of 1,000 frames is $100.