Question

B- AAA Manufacturing Company has the following information about its product: Selling price per unit 550 Fixed costs $200,000 CM Ratio 30% Required: 1. Calculate the variable cost per unit. 2. Assume that the company plans to sell 15,000 units this year. In your opinion, did you think the Company would be better off with this plan? Support your answer with necessary calculations 3. How many units the company needs to sell to reach a break- even? Proof your answer. (10 marks)

Answer 1

1) $35

variable cost per unit=selling price per unit-contribution per unit

selling price per unit=50

contribution per unit=selling price per unit*CM ratio

CM ratio is 30%

contribution per unit=50*30%=15

variable cost per unit=50-15=35

2)

company plans to sell 15000 units.

	$
sales ($50*15000)	750000
variable cost ($35*15000)	525000
gross contribution (sales - variable cost)	225000
fixed cost	200000
net income (gross contribution - fixed cost)	25000

the company would go with this project as the 15000 units provides a net income of $25000 after deducting all the costs.

3). 133333 units

breakeven units=total fixed cost/contribution per unit

total fixed cost=$200000

contribution per unit=$15

breakeven units=$200000/$15=133333.33 units rounding to the nearest whole number 133333 units.

note: units will not be represented as a fractional number