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Let's think through an example: Company A produces gadgets at $2 VC and incurs $200,000 FC per month. The gadget's normal sale price is $4 each, its breakeven point is 100,000 units, correct? Now, assume that the company can produce up to 150,000 units (relevant range for this cost structure) and it typically sells 110,000 units per month. A customer has placed a bid for 30,000 gadgets; however, they are willing to pay only $3 each. Would Company A accept the order? What are your thoughts?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9892469

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