Question

Zachary Corporation is a manufacturing company that makes small electric motors it sells for $49 per unit. The variable costs of production are $25 per motor, and annual fixed costs of production are $528,000. Required How many units of product must Zachary make and sell to break even? How many units of product must Zachary make and sell to earn a $72,000 profit? The marketing manager believes that sales would increase dramatically if the price were reduced to $45 per unit. How many units of product must Zachary make and sell to earn a $72,000 profit, if the sales price is set at $45 per unit?

Answer 1

Solution:

From the given data we need to find the given requirements.

1. Break even units:

= Fixed cost / Contribution per unit

= $528,000 / ($49 -$25)

= $528,000 / $24

= 22,000 units

2. Units to make and sell to earn profit:

= ($528,000 + $72,000) / $24

= $600,000 / $24

= 25,000 units

3. Units to make and sell:

= ($528,000 + $72,000)/($45 - $25)

= $600,000 / $20

= 30,000 units