A project's break-even point is 1,235 units when the average sale price per unit is $35 and the average variable cost equals $17.5 per unit. The fixed costs of the project are closest to ________.
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A. B. C. D.B
The break-even sales revenue equal 1,235*$35 = $43,225. The total variable costs equal $17.5*1,235 = $21,612.5. The fixed costs are therefore equal to $43,225
- $21,612.5 = $21,612.5.
To calculate the fixed costs of the project, we need to use the concept of the break-even point. The break-even point is the level of sales at which the total revenue equals the total cost, resulting in zero profit.
In this case, we are given that the break-even point is 1,235 units. The average sale price per unit is $35, and the average variable cost per unit is $17.5.
To calculate the total revenue at the break-even point, we multiply the number of units by the sale price per unit: Total revenue = 1,235 units * $35/unit = $43,225.
The total cost at the break-even point can be calculated by multiplying the number of units by the average variable cost per unit and adding the fixed costs: Total cost = (1,235 units * $17.5/unit) + Fixed costs.
Since the project is at the break-even point, the total revenue equals the total cost: $43,225 = (1,235 units * $17.5/unit) + Fixed costs.
Now, we can solve for the fixed costs: $43,225 - (1,235 units * $17.5/unit) = Fixed costs.
$43,225 - ($21,612.5) = Fixed costs.
Fixed costs = $21,612.5.
Therefore, the fixed costs of the project are closest to $21,612.5, which corresponds to option B.