Answer:
$5.5
Explanation:
The fixed cost of equipment = $10,000
Let the variable cost per unit be = $x
Total units that can be sold per year = 5,000
Total variable cost for all the units = $x × 5,000
= $5,000x
Total revenue per year:
= $7.50 × 5,000
= $37,500
To achieve at least break even point, the total must be at least 0.
Total profit = Total revenue - Total cost
0 = $37,500 - ($10,000 + $5,000x )
5,000x = $37,500 - $10,000
x = $5.5
Hence the highest variable cost per unit can be $5.5 for the firm to at least break even on the project.
The highest variable cost that will allow the firm to at least break even on this project is $5.5
Given data
The fixed cost of equipment = $10,000
Total units that can be sold per year = 5,000
Let $x represent the variable cost per unit
Total variable cost for all the units = $x × 5,000
Total variable cost for all the units = $5,000x
Total revenue per year = $7.50 × 5,000
Total revenue per year = $37,500
However, to achieve at least break even point, the total must be at least 0.
Total profit = Total revenue - Total cost
0 = $37,500 - ($10,000 + $5,000x)
5,000x = $37,500 - $10,000
5,000x = $27,500
x = $5.5
Therefore, the highest variable cost that will allow the firm to at least break even on this project is $5.5.
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