Question

Spencer Tools would like to offer a special product to its best customers. However, the firm wants to limit its maximum potential loss on this product to the firm's initial investment in the project. The fixed costs are estimated at $32,000, the depreciation expense is $9,700, and the contribution margin per unit is $9.85. What is the minimum number of units the firm should pre-sell to ensure its potential loss does not exceed the desired level?

Answer 1

Answer:

hence we say that minimum number of units to ensure its potential loss does not exceed the desired level is 3249 unit

Explanation:

Given data

fixed costs = $32000

depreciation = $9700

contribution margin = $9.85 per unit

to find out

minimum number of units

solution

we first find the break point so

break point = Fixed cost / contribution

put all these value

break point = 32000 / 9.85

break point is 3248.73

approx = 3249 unit

so hence we say that minimum number of units to ensure its potential loss does not exceed the desired level is 3249 unit