Hunter Preston is evaluating a business opportunity to sell premium car wax at v

Question

Hunter Preston is evaluating a business opportunity to sell premium car wax at vintage car shows. The wax is sold in 64-ounce tubs. Hunter can buy the premium wax at a wholesale cost of $35 per tub. He plans to sell the premium wax for $90 per tub. He estimates fixed costs such as travel costs, booth rental cost, and lodging to be $1,210 per car show. Read the requirements. Requirement 1. Determine the number of tubs Hunter must sell per show to break even. Begin by identifying the formula to compute the sales in units at various levels of operating income using the contribution margin approach. Fixed expenses Operating income Contribution margin per unit Sales in units Hunter must sell tubs per show to breakeven.

Explanation / Answer

a) Break even point :

Contribution margin per unit = 90-35 = 55 per unit

Hunter must sell 22 tubes for break even.

Fixed cost + Desired Operating income / Contribution margin per unit = Break even point 1210 + 0 / 55 = 22 units

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