1. Break-even analysis Aa Aa To be profitable, a firm has recover its costs. The
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1. Break-even analysis Aa Aa To be profitable, a firm has recover its costs. These costs include both fixed and variable costs. One way that a firm evaluates at what stage it would recover the invested costs is to calculate how many units or how much in dollar sales is necessary for the firm to earn a profit Consider this case: Defense Dynamics Co. is considering a project that will have fixed costs of $10,000,000. Its sale price will be $41.50 per unit, and it will have a variable cost per unit of $12.80 Therefore, Defense Dynamics Co. has to sell units to break even on this project (QBE) Defense Dynamics Co.'s marketing and sales director doesn't think that the firm's market is big enough for the firm to break even. In fact, she believes that the firm will be able to sell only about 175,000 units. However, she also thinks that the demand for Defense Dynamics Co.'s product is relatively inelastic, so the firm can increase the sales price. Assuming that the firm can sell 175,000 units, what price must it set to break even? $83.93 O $69.94 $76.93 $66.44Explanation / Answer
(a) Number of units to be sold to break-even = 10,000,000/(41.50-12.80) = 348,432
(b) Selling price should be $69.94
(c) Increase, Decrease, No change
(d) large decline
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