is considering the addition of a new plant to absorb the backlog of demand that

Question

is considering the addition of a new plant to absorb the backlog of demand that now exists. The primary location being considered wll hive fised costs of $13,162 per month and variable costs of S1.93 per usit produced. Each item is sold to retailers at a price that averages $2.19 a) The volume per month is required in order to break even b) The profit or loss would be realized on a monthly volume of 61,000 units c) The volume is needed to obtain a profit of $16,000 per month d) The volume is needed to provide revenue of $23,000 per month (in whole nuanber in whole number) (in whole raamber)

Explanation / Answer

Req A: Fixed cost: $ 13162 Selling price: $ 2.19 Variable cost: $ 1.93 Contribution margin per unit: Selling price - variable cost 2.19 - 1.93 = $ 0.26 per unit Break even in units: Fixed cost / Contribution margin per unit (13162/ 0.26) = 50,623 units Req B: Monthyl volume: 61,000 units Contribution on 61,000 units: (61000*0.26) = $15860 Net Income earned: Contribution earned- Fixed cost = 15860-13162 = $2698 Req C: Desired profits: $16,000 Desired contribution: Fixed cost + Dsesired profits = $ 13162+16000= $29162 Sales volume required: Desired contribution/ Contribution margin per unit 29162 /0.26 = 100,624 units Req D: Desired revenue: $ 23000 Revenue per unit: $ 2.19 Desired Sales volume: Dsired revenue / Revenue per unit = $23000 / 0.26 = 88462 units

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