Breakeven exercises: Sunflower Inc. is a leading manufacturer of artificial flow

Question

Breakeven exercises:

Sunflower Inc. is a leading manufacturer of artificial flowers. They would like to break into the market for life-like, but artificial cactus. Sunflower expects to sell the new product at $6 per unit. Their cost per unit is $2.50. In addition, the company expects that they will spend $135,000 on a marketing campaign to launch the new product, in addition to their standard fixed expenses of $20,500. For this idea to be approved by the board of directors, it needs to have a forecasted profit of at least $25,000.

How many units do they need to sell to meet this target?

Explanation / Answer

Contribution Margin Per Unit = Selling Price Per Unit - Variable Cost Per Unit

= $ 6 - $ 2.50

=$ 3.50

Required Profit = $ 25,000

Required Contribution Margin = Required Profit + Required Fixed Cost

= $ 25,000 + $ 20,500 + $ 135,000

= $ 180,500

Hence, required units they need to sell to meet this target = Required Contribution Margin/ Contribution Margin Per Unit

= $ 180,500 / $ 3.50

= 51,571.43 Units

= 51,571 Units

Hence the correct answer is 51,571 Units

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