Shells produces frames and sells them directly to retailers for $4.00. Manufactu

Question

Shells produces frames and sells them   directly to retailers for $4.00.  











Manufacturing   Costs:







Variable   cost
$2.35/frames






Marketing Expenses
$100,000






Admin Expen


$500,000






Please   show the calculation for the following:






contribution   per unit and contribution margin for the manufacturer



break-even   volume in units and dollars





volume   in units and dollar sales necessary   profit goal is $500,000



net   profit if 5 million wreaths are sold






Shells produces frames and sells them   directly to retailers for $4.00.  











Manufacturing   Costs:







Variable   cost
$2.35/frames






Marketing Expenses
$100,000






Admin Expen


$500,000






Please   show the calculation for the following:






contribution   per unit and contribution margin for the manufacturer



break-even   volume in units and dollars





volume   in units and dollar sales necessary   profit goal is $500,000



net   profit if 5 million wreaths are sold

Explanation / Answer

1) Contribution per unit is the price minus the variable cost of producing the item.

$4 - $2.35 = $1.65 per unit

Contribution margin is the contribution per unit divided by the selling price. Here $1.65 / $4 *100 = 41.25%

2) Breakeven level must be able to cover the marekting and admin expenses which total $600,000 ($100,000 + $500,000)

Since each unit earns 1.65, you need to make 600,000 / 1.65 = 363,636 units to break even.

This translates into dollar sales of 363,636 units * 4 / unit = $1,454,545.

3) To achieve profit goal of $500,000 you need to generate $1,100,000 after variable costs (to cover marketing, admin, and have $500,000 profit left over).

Again, we divide $1,100,000 by 1.65 per unit to get we need 666,667 units to break even.

This translates into dollar sales of 666,667 * $4 = $2,666,667

4) First, we figure out reveues = 5,000,000 * 4 = $20,000,000

Then we figure out variable costs = 5,000,000 * 2.35 = $11,750,000

Marketing expenses are $100,000

Admin expeses are $500,000

We subtract all the expenses above from revenues to figure out profit is $7,650,000

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.