Daisy Childs has decided to start an e-tail business which will sell doggie trea

Question

Daisy Childs has decided to start an e-tail business which will sell doggie treat dispensers. Daisy will sell each unit for $60, and will purchase the units from a foreign supplier for $20 each. Import duties are 10% the amount paid to the foreign supplier and freight-in is expected to be $4 per unit. Packaging and shipping the units to customers will cost another $6 per unit. Daisy has contracted out the web page design and maintenance for $2,520 per month. Daisy expects no other costs as long as she doesn't sell more than 1,000 units per month. Daisy's monthly sales revenue needed for her business to breakeven is $ The number of units must Daisy sell to make a target profit of $20,000 is (think carefully about your answers. make sure it's "possible." for example, you can't sell a partial unit.)

Explanation / Answer

Break even units = Fixed Costs / Contribution margin per unit
= $2,520 / $28 = 90 units

Break even revenue = 90 units x $60 = $5,400

Break even units at target profit = (Fixed Costs + Target profit) / Contribution margin per unit
= ($2,520 + $20,000) / $28 = 804 units

Contribution Margin Selling price $60 Less: Variable costs Purchase $20 Import Duty $20 x 10% $2 Freight $4 Packing and shipping cost $6 $32 Contribution margin per unit $28

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