Question

Typewritten answers only, no handwritten answers!

NewCar Inc plans to sell a new model auto kit to dealers at $8,000 per car. The consumer assembles the car in approximately 4 hours. Below is additional information on the project. NewCar Inc's investment in the project $1,000,000.00 (one million dollars).

Material cost per car                                      $5,000

            Labor cost per car                                           $ 1,000

            Factory Overheard                                          $ 200,000

            Distribution (delivery) per car                        $ 500

            Advertising                                                      $20,000

Manufacturer’s suggested retail price           $10,000

Based on pieces of information in your possession, calculate the following:

1.         Contribution per unit? (10 points)

2.         Break-even volume? (10 points)

3.         Net profit, if 1,000 units are sold? (10 points)

4.         Unit volume needed to achieve $50,000 profit? (10 points)

5.         Suppose NewCar Inc wants to realize 12% return on his investment at the end of the first year of operation. How much would that be? (10 points)

Typewritten answers only, no handwritten answers!

Answer 1

A)

Contribution Per Unit = Selling Price - Variable Cost per unit

Total Variable Cost Per Unit = $5,000 + $1,000 + $500 = $6,500

Contribution Per Unit = $8,000 - $6,500 = $1,500

Contribution (%) = $1,500 / $8,000 = 18.75%

(B)

Total Fixed Cost = $200,000 + $20,000 = $220,000 =

Break Even Units = Total Fixed Cost / Cont Per Unit = $220,000 / $1,500

Break Even Units = 146.67 Units

(C)

Net Profit in Case of 1 000 Units Sold

Sales = 1,000 * $8,000 = $8,000,000

Less :- Variable cost = 1,000 * $6,500 = $6,500,000

Contribution = $1,500,000

Less :- Fixed Cost = $220,000

Net Profit = $1,280,000

(D)

CD unit volume to achieve a $50,000 profit.

Target Sales = ( Fixed Cost + Target Profit ) / Contribution per Unit

= ( $220,000 + $50,000 ) / $1,500

= 180 Units

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