A small business invests $9,900 in equipment to produce a product. Each unit of the product costs $0.65 to produce and

This topic has expert replies
Moderator
Posts: 2058
Joined: Sun Oct 29, 2017 4:24 am
Thanked: 1 times
Followed by:5 members

Timer

00:00

Your Answer

A

B

C

D

E

Global Stats

A small business invests $9,900 in equipment to produce a product. Each unit of the product costs $0.65 to produce and is sold for $1.20. How many units of the product must be sold before the revenue received equals the total expense of production, including the initial investment in equipment?

A. 12,000
B. 14,500
C. 15,230
D. 18,000
E. 20,000

Answer: D

Source: Official Guide

GMAT/MBA Expert

User avatar
GMAT Instructor
Posts: 16207
Joined: Mon Dec 08, 2008 6:26 pm
Location: Vancouver, BC
Thanked: 5254 times
Followed by:1268 members
GMAT Score:770
M7MBA wrote:
Sat Sep 11, 2021 2:10 pm
A small business invests $9,900 in equipment to produce a product. Each unit of the product costs $0.65 to produce and is sold for $1.20. How many units of the product must be sold before the revenue received equals the total expense of production, including the initial investment in equipment?

A. 12,000
B. 14,500
C. 15,230
D. 18,000
E. 20,000

Answer: D

Source: Official Guide
Let x = the number of units produced AND sold

TOTAL COST
If each unit of the product costs $0.65 to produce, then it costs 0.65x dollars to produce x units
We must also add the $9,900 investment in equipment
So, TOTAL COST = 0.65x + 9900

TOTAL REVENUE
If each unit sells for $1.20 to produce, then selling x units results in TOTAL SALES of 1.2x dollars

We want: TOTAL REVENUE = TOTAL COST
In other words: 1.2x = 0.65x + 9900
Subtract 0.65x from both sides: 0.55x = 9900
Solve: x = 9900/0.55

PRO TIP: We know that 9900/0.5 = 19,800
Since 0.55 is a bit bigger than 0.5, we know that 9900/0.55 = a little bit LESS THAN 19,800

Answer: D

Cheers,
Brent
Brent Hanneson - Creator of GMATPrepNow.com
Image