Answer to Question #284390 in Economics for Aalia

Question

An engineering consulting firm measures its output in a standard service hour unit. The variable cost is $62 per standard service hour. The selling price is $85.56 per hour. The maximum output of the firm is 160,000 hours per year, and its fixed cost is $2,024,000 per year. What is the breakeven point in standard service hours and in percentage of total

capacity?

Answer 1

The breakeven point in standard service hours is:

$BEP = \frac{2,024,000} {85.56 - 62} = 85,908.32$ hours.

BEP in percentage of total capacity is:

$BEP = 85,908.32/160,000 = 0.537$ or 53.7%.