Question

The average cost of an item is defined as the total cost to produce it divided by the number of units produced .A shoe company that pays $240,000 in rent and employee salaries per year figures it also must pay $3.50 in materials per shoe set it produces. About how many shoe sets would the company need to produce for the average cost per shoe to be $7.50?

could someone explain this question to me like I'm a 5 year old?

Answer 1

The profit on each pair of shoes = 7.50-3.50 = 4.00 dollars
but it also costs 240,000 to run the company,
so the number of pairs of shoes to break even must be 240000/4 = 60,000

check:
to make 60000 pairs would cost 3.5*60000 + 240000 = 450,000
return on selling 60,000 at 7.50 each = 7.5*60000= 450,000
the answer is correct!

Curious.... where would a 5-year old get a question like this??