Noose to you, the cordage company, has developed a new stitch ligature for indiv

Question

Noose to you, the cordage company, has developed a new stitch ligature for individual mortalities, to be marketed as tight knots. R&D; expenses to date have been $200,000 on salaries, $500,000 on lab time and $300,000 for FDA review paperwork. Noose hopes to sell this product for $250.00 per unit. Cording costs $25.00. Labor to tie the knots typically costs $100.00, Witness expense is somewhat dependent upon location, but usually costs $25.00. How many units does noose have to sell to break even? Noose expects tight knots to cannibalize their older product Regular old people Expire [or r.o.p.e.] in the amount of 2,000 units If the contribution margins are the same how many Tight Knots units does Noose have to sell to breakeven including covering the lost gross profit on ROPE?

Explanation / Answer

total expense = 200000+500000+300000= 1000000

Total cost per unit = 25+100+25=150

revenue = 250
then profit per unit = 250-150 = 100
total profit for x units = 100x
at break even
100x= 1000000
x=10000

Hence 10000 units are needed for break even.

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lost sale = 1 million
so total revenue = 1000000+1 million= 2000000
so number of tight knowts needed = 2000000/100= 20000

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