Digital Displays Inc. makes computer monitors and sells them for $320 each. To break even, it needs to sell 545 monitors per month. If the fixed costs are $8,800 per month, what is the variable costs per monitor?
1) Cost includes the fixed cost (independent of number of units made) and variable cost (changes with the number of units produced).
2) Breakeven happens when the cost incurred and revenue generated are equal.
3) Total revenue generated = $320 x 545 = $174,400 = total cost.
4) Total variable cost = total cost - fixed cost = $174,400 - $8800 = $165,600
5) Variable cost per unit = total variable cost/number of units = $165,600/545 = $303.85.
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