The Oliver Company plans to market a new product Based on it

The Oliver Company plans to market a new product. Based on its market studies, Oliver estimates that it can sell up to 5,500 units in 2005. The selling price will be $5 per unit. Variable costs are estimated to be 50% of total revenue. Fixed costs are estimated to be $5,500 for 2005. How many units should the company sell to break even?

Solution

x = number of units sold , x < 5500

therefore revenue = 5x

variable cost = 50% of total revenue = 0.5* 5x = 2.5x

Fixed cost = $5500

Hence total cost = fixed cost + variable cost = 5500+2.5x

For the breakeven we have

Revenue = cost

=> 5x = 5500+2.5x

=> 2.5x = 5500

=> x = 2200 units