Therapeutic Systems sells its products for $8 per unit. It has the following costs:

Rent $120,000
Factory labor $1.50 per unit
Executive salaries $112,000
Raw material $.70 per unit

Separate the expenses between fixed and variable costs per unit. Using
this information and the sales price per unit of $6, compute the
break-even point.

Hi again!!

"Definition of Fixed Costs: In production, fixed costs are the costs
that do not vary with the number of goods produced. In the short-run
factors like land and rent are fixed costs, whereas raw materials used
in production are not."
From "Fixed Costs - Glossary - Dictionary Definition of Fixed Costs":
http://economics.about.com/cs/economicsglossary/l/bldeffixedcosts.htm

"Variable costs are costs that vary directly with the number of
products produced. For instance, the cost of the materials needed and
the labour used to produce units isn't always the same."
From "Breakeven Analysis - Fixed Costs Variable Costs":
http://sbinfocanada.about.com/cs/startup/g/breakevenanal.htm


According to the above definitions we have that:

Fixed costs are:
Rent $120,000
Executive salaries $112,000

Variable costs are:
Factory labor $1.50 per unit
Raw material $0.70 per unit


Break-even = Fixed Costs / Contribution margin per unit 

where:
Contribution margin per unit = (Revenues - Variable Costs) / Units sold =
                             = Price per unit - Variable cost per unit

Then:
Break-even = Fixed Costs / (Price per unit - Variable cost per unit) =
           = ($120,000 + $112,000) / [$6.00 - ($1.50 + $0.70)] =
           = $232,000 / $3.80 =
           = 61053 units


I hope that this helps you. Feel free to request for a clarification
if you need it.

Regards.
livioflores-ga

This is more than I bargained for. I really appreciate the
explaination of the terms. I did not expect all of that. Thanks