Corporate Finance Q115

115A company manufactures items with a selling price of $125 at a variable cost of $62.5 per unit. The operating fixed costs incurred by the company are $250,000, while the fixed interest charges incurred are $65,000. The company is liable to pay taxes at a rate of 35%. The quantity of items that the company should manufacture and sell to break-even is closest to:

Option : A
Explanation : Breakeven quantity = (Fixed operating costs + fixed financial costs) / (Price per unit – variable cost per unit) = (F + C) / (P - V) = (250,000 + 65,000) / (125 – 62.5) = 5,040.

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