You decide to start selling hypercars. You figure it will take $100,000,000 to start a factory. You plan to sell your cars for $2,000,000 each. Each car will cost about $1,000,000 to make. Your break-even point is:

Question

You decide to start selling hypercars.  You figure it will take $100,000,000 to start a factory.  You plan to sell your cars for $2,000,000 each.  Each car will cost about $1,000,000 to make.  Your break-even point is:

BlackTom AI · Accepted Answer

To begin, let's restate the scenario and the options to ensure we’re evaluating the same setup.
Question: You decide to start selling hypercars. You figure it will take $100,000,000 to start a factory. You plan to sell your cars for $2,000,000 each. Each car will cost about $1,000,000 to make. Your break-even point is:
Answer options: 100 cars, 1 car, 50 cars, 2 cars, 200 cars

Now, analyze each choice:
Option 1: 100 cars. This corresponds to the classic break-even formula: Break-even units = Fixed costs / Contribution margin per unit. Here, fixed costs = $100,000,000. Contribution margin per unit = price − variable cost = $2,000,000 − $1,000,000 = $1,000,000. So break-even units = $100,000,000 / $1,000,000 = 100. This option matches the computed value, making it a plausible correct choice.
Option 2: 1 car. If you sold just one car, your contribution would be $1,000,000, which would not cover the $100,000,000 fixed cost. This is far too small to reach break-even, so this option is incorrect.
Option 3: 50 cars. Contribution for 50 cars would be 50 × $1,000,000 = $50,000,000, still well below the $100,000,000 fixed cost. Thus, 50 cars do not cover the start-up investment, making this option incorrect.
Option 4: 2 cars. Two cars yield $2,000,000 in total contribution, again far short of the $100,000,000 fixed costs. This is not sufficient to break even, so this option is incorrect.
Option 5: 200 cars. At 200 cars, total contribution would be 200 × $1,000,000 = $200,000,000, which surpasses fixed costs by a large margin. While this would cover costs and generate profit, it implies a higher-than-necessary level to break even, so this option is incorrect as the exact break-even point.

In summary, the calculation shows that the break-even point occurs where fixed costs are exactly covered by the total contribution from units sold, which is achieved at 100 cars. The other quantities either fall short of covering fixed costs or exceed what’s necessary to reach break-even, resulting in a profit beyond break-even or an underfunded scenario depending on the count.

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You decide to start selling hypercars. You figure it will take $100,000,000 to start a factory. You plan to sell your cars for $2,000,000 each. Each car will cost about $1,000,000 to make. Your break-even point is:

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