Question

Jeremy opens a chocolate shop in the city. He pays $1,500 a month for rent and maintenance of the shop. The price of raw materials and manufacturing the chocolates is $6,000 a month. He sells the chocolates individually and in boxes of a dozen.

Jeremy understands that his business needs a little time to become a success and decides that he wants to build a customer base initially. He is happy to break even for the first year.

If Jeremy sells 2,400 individual chocolates and 50 boxes a month, how should he price his chocolates to break even, given the costs? (Assume that the price of a box is the same as the price of 12 individual chocolates.)

A.
$1.50 apiece

B.
$2.00 apiece

C.
$2.50 apiece

D.
$3.50 apiece

Answer 1

Both the cost and the # of chocolates made per month remains constant month per month. So we can look at one months expenses vs production only.

In one month, the costs are 6000 + 1500

The number of chocolates produced: 50 boxes * 12 per box, added to 2400 individual pieces.

Calculate the total cost and the total # of pieces produced. To break even, revenue must equal expenses, so you can simply divide (total cost) / (total # of pieces) to find the price per piece to break even.