the zenith manufacturing corporation sells a certain product at a price of 50 ea
ID: 2503288 • Letter: T
Question
the zenith manufacturing corporation sells a certain product at a price of 50 each. the variable costs involved in the manufacture of this product are 35 per unit. last year, the fixed costa were 600,000. difficult financial conditions compel management to adopt a cost-reduction scheme next year, thereby reducing variable costs to 25 per unit and fixed costs to 500,000.
a. how many units were sold last year to break even
b. how many units must be sold next year to break even
c. how many units must be sold next year for profit to be 10% of sales
Explanation / Answer
Let no. of units = x
a)
Sales = 50*x
Variable costs = 35*x
Fixed costs = 600,000
For breakeven
Sales = Costs
50x = 35x + 600,000
15x =600,000
x = 40,000 units
b)
Sales = 50*x
Variable costs = 25*x
Fixed costs = 500,000
For breakeven
Sales = Costs
50x = 25x + 500,000
25x =500,000
x = 20,000 units
c) Profit = Sales - Costs
0.1*Sales = Sales - Costs
Costs = 0.9* sales
500,000 + 25x = 0.9*50*x
500,000 = (45-25)*x
x = 25,000 units
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