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By: Shelby Moore

A company markets exercise DVDs that sell for $19.95, include shipping and handling. The monthly fixed cost (advertising, rent ect) are $24,000 and the variable cost (material, shipping, ect) are $7.45 per DVD.
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(A) Find the cost equation and the revenue equation. (B) How many DVDs must be sold each month for the company to break even? (C) Graph the cost and revenue equation in the same coordinate system and show the break-even point. Interpret the regions between the lines to the left and to the right of the break even point.

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The cost equation is the monthly fixed cost plus (x)variable cost  X being the number of cost variables being made The revenue equation is the revenue of these particular products(x)  X being the number of products sold C = MFC + (X)VC R = (X)R Cost Equation  C = 24,000 + 7.45x Revenue Equation  R = 19.95x This company's cost equation has two components: The fixed cost, that is a definite cost each month. And the variable cost, which depends on how much of the product is made/sold. The company’s revenue is the total number of product sold by the fixed profit.

To find the amount of DVDs that need to be sold in order for the company to break even you must use both the monthly fixed cost and the revenue equations.
MFC Equation: 24,000 + 7.45x  Revenue equation: 19.95x

Next you must set both equation equal to y so you can use the break even formula
Y =24,000 + 7.45x Y = 19.95x

Combining the equation you get:
19.95x = 24,000 + 7.45x 12.50x = 24,000 x = 1,920

The company must sell at least 1,920 DVDs to break even. Any amount more than 1.920 will be revenue

Graph of the Revenue and Cost equations with the Break-even point Y $60,000 Revenue equation Profit Cost equation Loss Break-even Point (1,920, 38,304) 3,000 X

This problem is a common situation that could be seen in a business setting. Finding a monthly fixed cost for production in a company is very important. It is necessary to know what the cost of your company is going to be. The revenue equation is also important to understand for business owners. The break-even equation can be used to figure out the amount of product that needs to be sold to have a profit. As a Agriculture technology management student, understanding fixed cost and revenue equations is very important.