Question

As an avid environmentalist, Dr. Lee decided to help reduce automobile drivers’ carbon footprint. He assembled a team of engineers who share his passion to work on a solar powered fully functional auto-kit. This kit can be put together by the consumer in 4 hours. It is a two-sitter sports-car-like that accelerates from zero to sixty miles in 8 seconds. The car performed well during its test market phase and Dr. Lee plans to launch in August, selling the car to environmentally conscious dealers at $8,000 per car. From the various data assembled, the estimated maintenance cost to a driver who drives less than 12,000 miles a year is $500.00 (no fuel cost at all!!!!), thus the car is a commuter’s dream!!!!! Below is additional information on the project. Dr. Lee’s investment in the project $1,000,000.00 (one million dollars).

Material cost per car	$     5,000.00
Labor cost per car	$     1,000.00
Factory Overheard	$ 200,000.00
Distribution (delivery) per car	$         500.00
Advertising	$   20,000.00
Manufacturer’s suggested retail price	$   10,000.00

Now, Dr. Lee has retained you as a consultant, and wants to meet you next week for advice. Based on pieces of information in your possession, calculate the following:

1.          Contribution per unit?

2.          Break-even volume?

3.          Net profit, if 1,000 units are sold?

Answer 1

Contribution Margin per Unit = Revenue per Unit - Variable cost per unit
Suggested retail Price	10,000
Material cost	5,000
Labor cost	1,000
Delivery	500
Contribution Margin per Car	3,500
Break even volume = Total Fixed costs/Contribution Margin per Unit	62.85714286
Net Profit	3,280,000