To be profitable, a firm must recover its costs. These costs include both its fixed and its variable costs. One way that a firm evaluates at what

stage it would recover the invested costs is to calculate how many units or how much in dollar sales is necessary for the firm to earn a profit.

Consider the case of Blue Mouse Manufacturers:

Blue Mouse Manufacturers is considering a project that will have fixed costs of $$15,000,000.$ The product will be sold for $$37\mathrm{.}50$ per

unit, and will incur a variable cost of $$10\mathrm{.}75$ per unit.

Given Blue Mouse's cost structure, it will have to sell $560,748>$ units to break even on this project $(Q_{BE}).$

Blue Mouse Manufacturers's marketing sales director doesn't think that the market for the firm's goods is big enough to sell enough units to

make the company's target operating profit of $$25,000,000.$ In fact, she believes that the firm will be able to sell only about $200,000$ units.

However, she also thinks the demand for Blue Mouse Manufacturers's product is relatively inelastic, so the firm can increase the sale price.

Assuming that the firm can sell $200,000$ units, what price must it set to meet the CFO's EBIT goal of $$25,000,000?$

$$242\mathrm{.}36$ per unit

$$263\mathrm{.}44$ per unit

$$210\mathrm{.}75$ per unit

$$221\mathrm{.}29$ per unit