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.