Question

Font Paragraph Styles Dictate Sensitivity Quantitative Assignment Information: A young college student John decides to make computers in a small workshop. A single computer consists of the following components, that cost the amounts given: Components Cost in $ per computer Picture tube for monitor: 20 Bare chassis Passive resistors 25 Active IC's Cabinet Speakers /accessories 15 Other Costs and Expenses: In addition to the above part and component costs: John has one engineer (whom he cannot do without) and pays $ 24,000 a year for his services. This engineer has been employed on a five-year contract, that cannot be breached. John also has rented the workshop with a 'lease' that cannot be broken, paying $6,000 a year as rent. Assume John's venture has no other annual costs. As initial investment, John has also spent $ 100,000 on manufacturing plant and equipment that should be usable for a period of five years.

Answer 1

Correct Answer:

A	Sale price		$                    230
B	Less: Variable cost per unit
	picture tube for monitor	$                 20
	bare chassis	$                 15
	passive resistors	$                 25
	active IC's	$                 70
	Cabinet	$                 40
	speakers / accessories	$                 20
	Total Variable cost per unit		$                    190
C =A-B	Contribution Margin		$                       40
D	Total Fixed cost
	engineer's salary	$         24,000
	rent	$           6,000
	Manufacturing plant and equipment per year (100000/5)	$         20,000
	Total Fixed Cost		$              50,000
E =C/D	Breakeven point in units		$                 1,250
F =E*A	Breakeven point in sales dollars		$           2,87,500

Requirement 2:

A	Total Variable cost per unit	$         190.00
B	Total Fixed cost per unit ( 20,000 /1400 units)	$           14.29
C=A+B	Breakeven price	$         204.29

End of answer.

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