Tom owns a hat shop. His total monthly cost is $1,850. Each hat costs $50. How many hats must Tom sell to break even each month?

• A. 40
• B. 37
• C. 38
• D. 39

Answer: (B)

Break-even happens when the money coming in from sales covers all the costs. If each hat sells for fifty dollars, that means every hat adds fifty dollars of revenue. Tom’s total monthly costs are eighteen hundred fifty dollars. To find how many hats are needed to cover those costs, divide the total costs by the price per hat. Eighteen hundred fifty dollars divided by fifty dollars per hat equals thirty-seven hats. So selling thirty-seven hats breaks even. If he sells more, he earns a profit; if he sells fewer, he incurs a loss.