Question

Stuart Corporation is a manufacturing company that makes small electric motors it sells for $53 per unit. The variable costs of production are $35 per motor, and annual fixed costs of production are $396,000. Required a. How many units of product must Stuart make and sell to break even? b. How many units of product must Stuart make and sell to earn a $72,000 profit? c. The marketing manager believes that sales would increase dramatically if the price were reduced to $47 per unit. How many units of product must Stuart make and sell to earn a $93,600 profit, if the sales price is set at $47 per unit? units a Sales volume b. Sales volume c. Sales volume units units

Answer 1

a. Contribution margin per unit = Selling price per unit - Variable costs per unit

= $53 - $35

= $18

Units to be sold = Fixed costs / Contribution margin per unit

= $396,000 / $18

= 22,000

b. Units to be sold = (Fixed costs + Desired profit) / Contribution margin per unit

= ($396,000 + $72,000) / $18

= 26,000

c. Contribution margin per unit = Selling price per unit - Variable costs per unit

= $47 - $35

= $12

Units to be sold = (Fixed costs + Desired profit) / Contribution margin per unit

= ($396,000 + $93,600) / $12

= 40,800