Question

The company is considering making a deluxe model. Its price would be $156, and its variable cost per unit would be $100, compared to a price of $100 and a variable cost of $60 for the basic model. It anticipates a sales mix of 60% basic model and 40% deluxe model. How many units of the basic model and how many units of the deluxe model must the company sell to achieve a monthly profit of $25,000.

Cost Category Fixed Cost Variable Cost per unit 30 Direct Material Direct Labor Rent Depreciation Electricity Other Manufacturing Selling Sales Commission Administrative 1200 Units produced and sold 36,000 18,000 5,000 4,000 4,400 19,600 8,000 12,000 5,000 1900 Units produced and sold 57,000 28,500 5,000 4,000 5,800 21,700 8,000 19,000 5,000 5,000 4,000 2,000 16,000 8,000 5,000

Answer 1

	Deluxe Model	Basic Model	Total
Sales price per unit	156	100
Variable cost per unit	100	60
Contribution margin per unit	56	40
Sales mix (40%:60%)	4	6	10
Total contribution margin	224	240	464
Weighted average contribution margin per unit ($464/10)			46.40

Desired sales in units = (Total Fixed costs + Target profit)/Weighted average contribution margin per unit = ($40000 + $25000)/$46.40 = 1400.86 = 1401 units

Number of units of Basic Model = 60% x 1401 = 840.52 = 841 units

Number of units of Deluxe model = 40% x 1401 = 560.4 = 560 units

Kindly round off as required since no instructions have been provided with the question regarding rounding off.

Note: The fixed costs given are assumed to be the monthly fixed costs.