The marketing manager of Durant Corporation has determined that a market exists

Question

The marketing manager of Durant Corporation has determined that a market exists for a telephone with a sales price of $30 per unit. The production manager estimates the annual fixed costs of producing between 40,000 and 80,000 telephones would be $450,000. Assume that Durant desires to earn a $165,000 profit from the phone sales. How much can Durant afford to spend on variable cost per unit if production and sales equal 50,000 phones? (Round your answer to 2 decimal places.) Variable cost per unit

Explanation / Answer

Total Contribution = Fixed cost + Desired profit

                                  =$450,000+$165,000

                                   =$615,000

Contribution per Unit=$615,000/50,000 units=$12.3

Variable cost per unit= Sales price- Variable cost per unit=$30-$12.3=$17.7

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