Question

Birdie Par owns a company that makes golf gloves. She is thinking about introducing a new glove, which would require an additional fixed cost of $20,000 per year. The variable costs for the new glove have been estimated to be $5 per glove. a) if she sells the new glove for $15, how many must she sell to break even? [8 marks] b) If she sells 3,000 gloves at the $15 price, what will the contribution to profit be? [17 Marks]​

Answer 1

Birdie's company will make a profit of $30,000 if she sells 3,000 gloves at the $15 price.

Step-by-step Solution:

Break even point= fixed cost/ selling price - variable cost

here the fixed cost is= $20,000

selling price= $15 and variable cost = $5

BEP= 20,000/ 15-5= 20,000/10= 2000 units

b. if they sell 3000 gloves, the contribution profit will be

total revenue= 3000*$15= $45,000

contribution= selling price- variable cost, 15-5= $10 per unit

the profit is= 3000*$10= $30,000

What is  variable cost?

A variable cost is one that varies in relation to either the volume of production or the number of services provided. There should be no variable costs if no production or services are provided. Variable costs should rise in tandem with increases in production or services.

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