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A business produces 4,000 units per month which it sells at $20/unit. Costs include: $10,000 on raw materials, $15,000 in wages for operators and $10,000 in wages to sales people. If the business is just breaking even, what are its fixed costs:

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pedrocarratore

Answer:

$45,000

Explanation:

In this problem, assume that the wage for operators and sales people are based on production volume and therefore computed as variable costs alongside raw materials.

If the company is breaking-even, the following relationship is true:

[tex]Revenue = Fixed\ Costs+Variable\ Costs[/tex]

At a volume of 4,000 units selling at $20 each, the fixed costs must be:

[tex]4,000*\$20=FC+(\$10,000+\$15,000+\$10,000)\\FC = \$80,000-\$35,000\\FC=\$45,000[/tex]

Fixed Costs are $45,000.

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