Durable Manufacturing Company wants to introduce a new product. The company esti

Question

Durable Manufacturing Company wants to introduce a new product. The company estimates that the variable costs would be $8 and the fixed costs would be $70,000.

a) IF the selling price is $20, what is the break-even point?

b) IF the selling price is set at $18, the company expects to sell 15,000 units. What would be the total profit for this alternative?

c) A foreign firm has offered to produce the product at $10 per unit. If the selling price is to be set at $20, what would be the breakeven point between the decision to make or buy?

Explanation / Answer

A

Fixed cost = $ 70,000

Variable cost = $ 8

Selling price = $ 20

Break even = Fixed cost / Selling price - variable cost

Break even = 70000 / 20 - 8

Break even = 5833 units

B

Selling price = $18

Estimated sales = 15000 units

Contribution to profit = total revenue - total cost

Contribution to profit = 18*(15000) - { 70000 + 8*(15000)}

Contribution to profit = $80000

Please submit another question for part C

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