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 Subject: Math question Category: Business and Money > Finance Asked by: carlad22-ga List Price: \$5.00 Posted: 19 Jun 2005 16:41 PDT Expires: 19 Jul 2005 16:41 PDT Question ID: 534915
 ```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```
 carlad22-ga rated this answer: ```This is more than I bargained for. I really appreciate the explaination of the terms. I did not expect all of that. Thanks```