Answer to Question #287060 in Algebra for Ermias

Question

3. Suppose a retailer purchased an item with birr 80 and sold for birr 130. Its fixed cost is birr 10,000 and variable cost other than cost of goods sold is 5%.

Compute

A. Develop the cost equation

B. Find Breakeven point in terms of quantity

Answer 1

A. Let $x=$ the number of items sold. Then the total cost is

$$C(x)=10000+80(1+0.05)x$$

$$=10000+84x$$

The cost equation is

$$C(x)=10000+84x$$

B. Total profit at the break-even point is zero.

$$10000+84x=130x$$

$$10000=46x$$

$$x=218$$

$$130(218)=28340$$

At the break-even point revenue is birr 28340 when 218 items were sold.