Question

Northern woods furniture is considering adding a cedar picnic table to it’s line of furniture. NWS estimates that it will sell for $50 to distributors. They also estimate that the fixed cost of producing that table will be $13,000 and that the variable cost per table will be $22. Find the total sales they need to break even.

Answer 1

Explanation

The break-even point is the point where the profit and the loss are the same (equal). To calculate it, we have the following formula:

$Break-even=\frac{Fixed\text{ costs}}{Price-Variable\text{ costs}}$

where "Price" denotes the value estimate (per unit) by the company. In this case, such a value is $50. And "Variable costs" denotes the variable cost per table; in this case, it's $22. Then,

$\text{Break}-\text{even}=\frac{13000}{50-22}=\frac{13000}{28}\approx464.2$

Now, note that the obtained number of sales is not an entire number. In such cases, we choose the next integer (for we prefer no loss); in this particular case, it's 465.

Answer

The total sales the company needs to break even are 465.