SOLUTION: Joe's has a division that makes bags for the citrus industry. The unit has operating fixed costs of $10,000 per month, and it expects to sell 42,000 bags per month. If the variab

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Question 62047: Joe's has a division that makes bags for the citrus industry. The unit has operating fixed costs of $10,000 per month, and it expects to sell 42,000 bags per month. If the variable cost per bag is $2.00 what price must the division charge in order to break even?
Answer by 303795(602) About Me  (Show Source):
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If the fixed costs are $10 000 per month then that cost must be spread across the 42 000 bags sold per month.
Fixed cost per bag is 10 000 / 42 000 = $0.238 (24 cents)
The price to sell each bag is therefore the 24 cents of fixed costs plus the $2.00 of variable costs ie a total of $2.24 per bag must be charged to break even.