Company Q plans to make a new product next year and sell each unit of

Question

Company Q plans to make a new product next year and sell each unit of this new product at a selling price of $2. The variable costs per unit in each production run are estimated to be 40% of the selling price, and the fixed costs for each production run are estimated to be $5,040. Based on these estimated costs, how many units of the new product will Company Q need to make and sell in order for their revenue to equal their total costs for each production run?

A. 4,200
B. 3,150
C. 2,520
D. 2,100
E. 1,800

A. 4,200
 B. 3,150
 C. 2,520
 D. 2,100
 E. 1,800

Bunuel · Accepted Answer

The variable costs per unit = 0.4*2 = $0.8. So, we are left with $1.2.

To break even with $5,040 of fixed costs, $5,040/1.2 = $5,040*5/6 = 4,200 units should be made.

Answer: A.

sashiim20 · Answer

Let the total number of units be x.

Selling price of total x units = $2x

Total Cost price = 5040 + 40% of selling price $2x

5040 + \frac{40}{100} * 2x = 5040 + 0.8x

2x = 5040 + 0.8x

2x - 0.8 x =5040

1.2x = 5040

x = \frac{5040}{1.2} = $4,200  . Answer A...

amanvermagmat · Answer

If company makes x units, Sp of those x units = 2x dollars

Now we are given that 40% of this Sp is variable cost, and rest must be thus fixed cost of $5040. So $5040=60% of 2x =1.2x

So x = 5040/1.2 = 4200

Hence A answer

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BrentGMATPrepNow · Answer

Let x = number of units Company Q must make to break even
So,  2x = REVENUE  from selling x units

As for EXPENSES, we have:
Fixed cost = 5040
Variable cost = 40% of total selling price = 40% of 2x = (0.4)(2x) = 0.8x
So,  TOTAL EXPENSES = 5040 + 0.8x

We want the revenue to equal the expenses. 
So, we want:  2x  =  5040 + 0.8x  
Subtract 0.8x from both sides: 1.2x = 5040
Solve: x = 5040/1.2
 Note: There's no need to perform this calculation.  
Since 4800/1.2 = 48000/12 = 4000, we know that 5040/1.2 must be greater than 4000

Answer: A

RELATED VIDEO
 https://www.youtube.com/watch?v=8GqcJGUVIk4

Abhishek009 · Answer

Total Cost = Fixed Cost + Variable Cost

Or, Total Cost = Fixed Cost + (Cost Price per unit x No of Units Produced)

Here, Variable Cost is 0.8

So, Total Cost = 5040 + 0.80*n (Where n = Number of Units produced)

Total Revenue = No of Units Sold x Selling Price of each unit

So, Total Revenue = 2n

5040 + 0.80n = 2n

Or,  n = \frac{5040}{1.20}

Or,  n = 4200

Hence, the correct answer must be (A) 4200

ScottTargetTestPrep · Answer

Let’s let n = the number of units sold in order to break even. The variable cost per unit is 0.4 x 2 = 0.8; thus, the variable cost for n units is 0.8n. We know that the fixed cost is $5040 and the revenue is 2n. We can create the following equation, equating total cost to total revenue:

0.8n + 5,040 = 2n

5,040 = 1.2n

4,200 = n

Answer: A

sadikabid27 · Answer

Did number testing. Is this method efficient here?

Jeeva1989 · Answer

I also did number testing with regards to solving this question. Is it an efficient method to solve this question?

amanvermagmat · Answer

Hello

I think in this one, using arithemtic (as Bunuel or I have used in our solutions) would probably be better.

Although yes, we can apply same arithmetic funda by picking up numbers from the options. Whatever number of units company Q makes and sells, 60% of SP of those units should be equal to $5040, which is the fixed cost. And SP of each unit is $2, so 60% of that = $1.2.

So lets pick up option C- 2520. But 2520*1.2 is not 5040, its less and also its in decimals. 
So we need a bigger value, lets pick up option A - 4200. 4200*1.2 = 5040, so this is correct. Option A.

nktkobby808 · Answer

Equate selling revenue = Total cost 
x-represents units sold
variable cost = 0.4*$2 = $0.8

2x = 5040 + 0.8x
x = $5040/1.2 = 4,200 units

shaonkarim · Answer

2x=.8x+5040 
 (2*40%=.8)
=>1.2x=5040
=>x=5040/1.2=4200
So, 4200 units should be sold to equal the revenue with the cost of the production

Answer is A

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mimajit · Answer

If the SP = 2 $ Given.

40% = Variable cost = 0.40*2 = 0.80 $ per peice.
So money remaining to recover Fixed cost and Make profits = 2-0.80 = 1.20

fixed costs for each production run are estimated to be $5,040.

Target question : Based on these estimated costs, how many units of the new product will Company Q need to make and sell in order for their revenue to equal their total costs for each production run?

So we need to find how many Units we need to produce to recover the Fixed cost as we don't want to earn profits but just need to break even,

=5040 /1.20 = 4200 Option A

dylanl1218 · Answer

For revenue to be equal to cost we can define the following formula:

Q = Quantity

2Q = 2/5 X 2Q + 5040

Then we can solve for Q which is equal to:

Q = 5(5040)/3(2) = 5(2520)/3

Using approximation we know that 2520<Q<5040, and since we know that 5/3 = 1 and 2/3 then the result must be greater than 2520 + 1/2 of 2520, so the only possible answer is A.

GMATinsight · Answer

Answer: Option A

Video solution by  GMATinsight

https://www.youtube.com/watch?v=jR2zLSVeqBw

avigutman · Answer

Video solution from Quant Reasoning: Subscribe for more: https://www.youtube.com/QuantReasoning? ... irmation=1 https://www.youtube.com/watch?v=BizNEhWgRHY

yazadsarkari · Answer

So when we look at these sums we should know that Selling price less the variable cost is equal to contribution

And to find out the number of units the formula is fixed cost divided by contribution

So for this sum it will be. 5040/1.2 ~ 4200

1.2 is derived by minusing .8 from 2

bumpbot · Answer

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Company Q plans to make a new product next year and sell each unit of

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