Question

Determine the fixed cost of a pencil manufacturing company per year if its breakeven point is 300,000 packets of pencils, selling price of each packet of pencil is $3, and the cost of equipment and labor to manufacture one packet of pencil is $1.

Answer 1

Let Pe = equilibrium point, CF = fixed cost, PVU = unit sale price, CVU = unit sale cost, we have to define the equilibrium point: Pe = CF / (PVU-CVU). Therefore, by clearing the fixed cost and substituting, we have: CF = Pe * (PVU-CVU) = 300000 * (3-1) = 600000 $