Question

you own a small manufacturing business that produces widgets. you have spent $150,000 acquiring the fixed assets you need to produce widgets. each widget costs you $2 to make and they sell for $15 each, so your variable cost is 13.3% of the overall revenue.

at your current level of operating leverage, how many widgets must you sell to break even?

○ 19,950
○ 13,482
○ 11,539
○ 10,000

Explanation:

Step1: Recall Break - Even Formula

The break - even point (in units) formula is $Q=\frac{FC}{P - VC}$, where $Q$ is the quantity of units, $FC$ is the fixed cost, $P$ is the price per unit, and $VC$ is the variable cost per unit.
Here, the fixed cost $FC = 150000$ dollars, the price per widget $P=15$ dollars, and the variable cost per widget $VC = 2$ dollars.

Step2: Substitute Values into the Formula

Substitute $FC = 150000$, $P = 15$, and $VC=2$ into the formula:
$Q=\frac{150000}{15 - 2}=\frac{150000}{13}\approx11538.46\approx11539$

Answer:

11,539