Could you please clarify Q6 ?
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Hello Ana!
For this problem in particular, but also in general when it comes to production cost, think of break even always from the equation:
Fixed cost / (Price per unit - Cost per unit)
- Fixed costs: overall fixed costs for running the production (e.g., administration, plan, electricity, etc.) They need to be allocated to each product produced, in a fraction
- Price per unit: price at which each unit is sold
- Cost per unit: on top of the fixed ones, there are other costs, variable costs, associated to the price of producing each unit (e.g., raw material)
Hence, here we would need to divide $1B of fixed costs by $64, to obatin number of units of 15.6 million customers.
Hope it helps!
Cheers,
Clara
(edited)
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Hi Ana,
Breakeven point can be calculated by:
- Fixed costs / (price per unit - cost per unit)
the equation is basically Fixed Costs = Profit * # of Units
In this case, price per unit minus cost per unit is actually already provided to us (profit of $64 per customer). So, all we need to do is divide fixed costs of $1B by $64, to get # of units of 15.62 million customers!
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