Suppose you are the manager of a firm. The accounting department has provided cost estimates, and...

Question:

Suppose you are the manager of a firm. The accounting department has provided cost estimates, and the sales department sales estimates, on a new product. Analyze the data they give you, shown below, determine what it will take to break even, and decide whether to go ahead with production of the new product.

The product has a production cost function C(x) =560x +12,600 and a revenue function R(x) = 700x

The break-even quantity is......units

Break-even Quantity:

Break-even quantity can be defined as the level of quantity required by the businesses to cover their cost of production. It is the point where cost of business is equal to the revenue of the business. It defines the relationship between profits the company and cost of the company.

Answer and Explanation:

The product has a production cost function C(x) =560x +12,600 and a revenue function R(x) = 700x

The break-even quantity is 31.5 units.

The break-even quality can be calculated by equating the function of cost and revenue. So,

{eq}\begin{align*} 560x + 12,600 &= 700x\\ 560x - 700x &= 12600\\ 140x &= 12600\\ x &= 31.5 \end{align*} {/eq}


Learn more about this topic:

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Using Break-Even Analysis to Evaluate a Marketing Plan

from UExcel Principles of Marketing: Study Guide & Test Prep

Chapter 3 / Lesson 4
3.9K

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