Question

1. Assume sales and demand are 1,500 units, how much will the company make on the sale of the next unit (1,501^st)? Discuss which costs will change if the company makes and sells one more unit. Will the company make a profit on the unit if they sell at a price below your answer in 2? Please discuss your calculations and reference to Figure 1.

Figure 1:

	Total at 2,000 Units	Per Unit
Sales	$600,000	$300
Variable Costs	321,000	160.5
Contribution Margin	279,000	139.5
Fixed Costs	182,000	91
Operating Income	97,000	48.5

Answer 1

ANSWER:

GIVEN CONTRIBUTION PER UNIT IS $139.5

BREAK EVEN POINT = FIXED COST/CONTRIBUTION PER UNIT

=182000/139.5=1305 UNITS

IF COMPANY SELLS 1305 UNITS THERE IS NO PROFIT OR NO LOSS

GIVEN COMPANY'S SELLS AND DEMAND IS 1500 UNITS

VARIABLE COST PER UNIT REMAINS CONSTANT

FIXED COST IS OF 182000 REMAINS CONSTANT UPTO 2000UNITS

WHERE DEMAND IS OF 1500 UNITS

MAKING OF 1501st unit it cost variable cost of 160.5 p.u

Answer 2: If company makes sell of that unit it makes profit of operating income of $48.5 per unit