Confusing DS

[adi_800]

Firm XYZ incurs fixed overhead costs of $216,000 every year. What price should it charge to break even for the year, if it can sell all of its output?

(1) For every 100 units the company produces, it adds an additional $250 in production costs.

(2) The firm must produce 500 units every month

OA is C

[shankar.ashwin]

THis question doesnt make sense. It should be E IMO

To break even, you need to sell stuff and they dont give us any selling cost in either statements. Or maybe I am not reading it right. But the wording doesnt sound right to me.

Could you mention the source?

[adi_800]

Source is grockit and d explanation is not clear...
So no point in posting that..
Need some experts reply !!

[fcabanski]

Use a general formula for break even: Price - (fixed overhead + unit costs) = Profit. Or Price - fixed overhead - unit costs = profit. For break even, profit is 0. Remember, the firm sells everything it produces, so x is both the units produced and the units sold. They're the same.

P - price
X - units
C - unit cost


Px - 216000 - Cx = 0


Fact 1:

Tells us there is a $250 additional overhead (unit cost) for every 100 units produced.

Px - 216000 - 250(x/100) = 0

One equation, two unknowns. Not sufficient.

Fact 2:

Tells us the firm must produce 500 units per month. It doesn't say "at least", so 500 is the number of units (x in our equation) it produces (and sells).

6000P - 216000 - 6000C = 0

One equation, two unknowns, not sufficient.

1 & 2

We know both that 500 units are produced per month, and that the unit cost is 250 for every 100 units: 250*(x/100).

6000P - 216000 - 250*(6000/100) = 0

One equation, one unknown, solve for P. Both together are sufficient.

[gmatclubmember]

Firm XYZ incurs fixed overhead costs of $216,000 every year. What price should it charge to break even for the year, if it can sell all of its output?

(1) For every 100 units the company produces, it adds an additional $250 in production costs.

(2) The firm must produce 500 units every month

OA is C

Not bringing in anymore outside information to the question all we need to know is that how much price to charge for each unit of product.
1. Doesnt say anything about how many units are manufactured. INSUFFICIENT
2. If the firm is producing 500 units PM then in an year 6000. expenses are 216000. so the price per unit should be 216000/6000=36. SUFFICIENT.

So the answer should be B.

[fcabanski]

I have to agree with B. My solution assumed (in 2) there was an additional unit cost. But 2 didn't mention an additional unit cost.

[thestartupguy]

Can any expert answer this question? My IMO:B, but I see a different approach to solve the question.

[fcabanski]

B is the answer. What's your approach?

[tpr-becky]

The problem is that the wording is a little vague - without statement 1 it is not at all clear that there are additional costs you need to deduct. Therefore the answer would be B. However if you have to consider unit production costs you would need both numbers and the answer would be C.

[fcabanski]

"The problem is that the wording is a little vague - without statement 1 it is not at all clear that there are additional costs you need to deduct. Therefore the answer would be B. However if you have to consider unit production costs you would need both numbers and the answer would be C."

Yes, but don't evaluate 2 alone with assumptions about any info in 1. 2 alone doesn't specify per unit costs in addition to the fixed overhead.