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18 October, 12:44

The owner of a small restaurant that sells take-out fried chicken and biscuits pays each month $2,500 in rent, $500 in utilities, $750 interest on his loan, insurance premium of $200, and $250 on advertising on local buses. A bucket of take-out chicken is priced at $9.50. Unit variable costs for the bucket of chicken are $5.50. How many small buckets of chicken does the restaurant need to sell to break-even each month? a. 442 buckets b. 764 buckets c. 1,050 buckets d. 3,150 buckets e. 4,200 buckets

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  1. 18 October, 16:39
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    option (c) 1,050 buckets

    Explanation:

    Data provided in the question:

    Rent paid = $2,500

    Utilities = $500

    Interest on loan = $750

    Insurance premium = $200

    Advertising on local buses = $250

    Price of bucket of take-out chicken = $9.50

    Variable cost of bucket of take-out chicken = $5.50

    Now,

    at break-even

    Total cost = Total revenue

    Thus,

    Total fixed cost + Total variable cost = Total revenue

    let the break-even units be 'x'

    therefore,

    $2,500 + $500 + $750 + $200 + $250 + $5.50x = $9.50x

    or

    $4,200 = ($9.50 - $5.50) x

    or

    $4x = $4,200

    or

    x = 1,050 buckets

    Hence,

    option (c) 1,050 buckets
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