Question

The marketing manager of Thornton Corporation has determined that a market exists for a telephone with a sales price of $20 per unit. The production manager estimates the annual fixed costs of producing between 41,900 and 80,400 telephones would be $196,800.

Required:

Assume that Thornton desires to earn a $128,000 profit from the phone sales. How much can Thornton afford to spend on variable cost per unit if production and sales equal 46,400 phones?

Answer 1

Sales (46,400*$20)	$   928,000
Less: Desired profit	$ (128,000)
Less: Fixed costs	$ (196,800)
Total variable cost	$   603,200
Variable cost per unit ($603,200/46,400)	$              13

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