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Setting up a business

Use the following information to answer the questions.

A friend of yours is trying to determine whether to open a sandwich stand at the local mall based on the following data. She expects total fixed costs per year of $24,000, a sale price per sandwich of $3.00, and variable costs per sandwich of $1.80.

The break-even level of output for this endeavor is:

(A) 12,000.
(B) 16,000.
(C) 20,000.
(D) 24,000.

What percentage of every sales dollar will contribute to covering fixed costs?
(A) 30%
(B) 40%
(C) 50%
(D) 60%

The break-even point in sales dollars is:

(A) $60,000.
(B) $54,000.
(C) $46,000.
(D) $30,000.

If your friend expects to sell no more than 15,000 sandwiches per year, then:

(A) she should not undertake the endeavor given the current cost/volume/profit expectations.
(B) she should undertake the endeavor given the current cost/volume/profit expectations.
(C) she should assess the effect of lowering the sales price of sandwiches if she wishes to pursue this endeavor.
(D) None of the above.

Solution Preview

Suppose x sandwich is sold. The sales price per sandwich is $3.00. So the revenue is R = 3x. The cost per sandwich is $1.8 and the fixed cost per year is $24,000, then the total cost is C = 1.8x + ...

Solution Summary

This provides an example of finding break-even point and fixed costs.

$2.19