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19 May, 08:26

Hedge Fun is a landscaping firm that specializes in topiary. It contracts with the owners of 125 local homes and provides its service at an annual fee of $1,300. Its average variable cost is $800, and its annual fixed cost is $28,000. What is the break-even level of output?

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  1. 19 May, 08:36
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    Break-even level of output = 56

    Explanation:

    Given:

    Annual Revenue = $1,300

    Total Fixed cost = $28,000

    Variable cost = $800

    Computation of contribution:

    Contribution = Sales - Variable cost

    Contribution = Revenue - Variable cost

    Contribution = $1,300 - $800

    Contribution = $500

    Computation of Break-even level of output:

    Break-even level of output = Total Fixed cost / Contribution

    Break-even level of output = $28,000 / $500

    Break-even level of output = 56
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