Marshall Tool and Die would like to offer a special product to its most loyal cu
ID: 2737736 • Letter: M
Question
Marshall Tool and Die would like to offer a special product to its most loyal customers. However, given its concerns with the fragile economy, Marshall wants to limit its maximum potential loss on this product to the firm's initial investment in the project. Marshall expects to sell the product to its loyal customers for $18.00 per unit. The product has a variable cost of $6.00 per unit. The fixed costs are estimated at $18,000, and the depreciation expense is $9,000. What is the minimum number of units the firm should pre-sell to ensure its potential loss does not exceed the desired level? 1,500 units 1,680 units 1,840 units 2,030 units 2,200 units
Explanation / Answer
Breakeven in units = Fixed costs÷Contribution per unit
= $18,000÷($18-$6)
= 1,500 units
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