Question

Kid’s Corner sells lamp systems for $25. These systems use LEDs to create a light display across walls or ceilings. Kid’s Corner pays $13 for the systems. Fixed costs incurred by the company are $18,000. a. What is the breakeven point in units? b. If Kid’s Corner wishes to earn $10,000 in operating income, how many systems will it have to sell?

Answer 1

Answer:

a. Breakeven point: 1,500 units.

b. Kid´s Corner would have to sell 2,333.33 units to earn $10,000 in operative income.

Explanation:

a. breakeven point in units$=\frac{fixed costs}{Total sales revenue - Cost to make product}$

breakeven point= $=\frac{18,000}{25-13}=1,500 units$

b. Operating income =  Total revenue - direct costs-indirect costs

$10,000=$25*X-$13*X- 18,000

Where X is the amount of units to sell

Isolating X from the equation, we have:

12X=28,000

X=28,000/12

X= 2,333.33