7. A company plan to manufacture a product and sell it for $3 oo per unit. cost

Question

7. A company plan to manufacture a product and sell it for $3 oo per unit. cost $250,000 and will have salvage value of $12,000 at the end of its useful life of 15 years. The equipment can manufacture up to 2,000,000 units per year. Direct labor costs are 5 per unit, material costs are $0.85 per unit, and sales expenses are $025 per unit, and fixed overhead costs are number of (a) If capital investments and return on the investment are excluded, what is the all other units that the company must manufacture and sell in order to break even with costs? (8 points) that the company mus depreciation is used, find the number of units (b) sell in to yield a profit of 2 manufacture and

Explanation / Answer

Question a) Break-even point (In Units) = Fixed Costs / Contibution per unit

   Fixed Cost = $ 200000

   Contribution Per Unit = Sale price - Variable Cost per unit = [ 3 - (0.25 + 0.85 + 0.25) ] = 3 - 1.35 = $ 1.65

Break-even point (In Units) = 200000 / 1.65 = 121212 Units (approx)

Conclusion:- The number of units that company must manufacture and sale in order to break even with all other costs = 121212 Units (approx)

Question b)

Let A be the number of units manufactured and sold by the company.

Sales - Variable Costs - Fixed Cost - Depreciation = Return

3 A - 1.35 A - 200000 - 15866.67(NOTE 1) = 20 % of 250000

1.65 A - 215866.67 = 50000

1.65 A = 265866.67

A = 265866.67 / 1.65 = 161131 Units (approx)

Conclusion:- The number of units manufactured and sold by the company in order to yield a return of 20 % on investment = 161131 Units (approx)

NOTE 1 :- Depreciation = 250000 - 12000 / 15 = 238000 / 15 = $ 15866.67 (approx)

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