Question

1. You are going to open a business making custom cabinets. Using the data in the table, provide answers to the questions below.

Cabinet Selling Price	$ 84
Time to Make One Cabinet	30 minutes
Labor Cost per Hour	$ 18
Raw material Cost per Cabinet	$ 28
Fixed Costs	$ 5000
Desired Profit per Month	$ 2000

What is your Contribution Margin? $--------- (two decimals)
Cabinets to be made per month to Break Even? ----------- ~ cabinets\month
Monthly Revenue needed to reach your desired profit? $---------- (two decimals)

2. You are going to open a business making custom skateboards. Using the data in the table, provide answers to the questions below.

Skateboard Selling Price	$ 167
Time to Make One Cabinet	5 hours
Labor Cost per Hour	$ 27
Raw material Cost per Skateboard	$ 17
Fixed Costs	$ 18000
Desired Profit per Month	$ 13000

What is your Contribution Margin? $---------- (two decimals)
Skateboards to make per month to Break Even? ------------ ~ skateboards\month
Monthly Revenue needed to Break Even? $------------- (two decimals)
Skateboards sold to reach desired profit? -------------- ~ skateboards\month
Monthly Revenue needed for desired profit? $------------ (two decimals)

Answer 1

1.

contribution margin caculation:

sales price	$84
less: labor cost ($18 per hour * 30 minutes / 60 minutes per hour)	(9)
raw material cost per cabinet	(28)
contribution per unit	$47

cabinets to be made per month to break even = fixed costs / contribution per unit

=>$5000 / 47

=>106.38 which is similar to 106 cabinets.

Monthly revenue need to reach desired profit = (fixed cost + desired profit) / contribution ratio

here,

contribution ratio = contribution per unit / sales price per unit

=>$47 / 84

=>0.55952.

monthly revenue needed = (5000+2000) / 0.55952

=>7000 / 0.55952

=>$12,510.72.

2 nd question;

contribtion margin.

sales price	$167
less: materials	(17)
less: direct labor ($27 per hour * 5 hours)	(135)
contribution margin	$15

skate boards per month to break even = fixed costs / contribution per unit

=>$18,000 / 15

=>1200 skateboards per month.

monthly revenue needed to break even= 1200 skate boards *$167

=>$200,400.

skate boards to reach desired profit = (fixed costs +desired profit per month) / contribution per unit

=> (18000+13000) / $15

=>2067 skate boards per month.

monthly revenue needed = 2067 skate boards *$167

=>$345,189.