Question

A manufacturer has fixed costs of $100,000, a variable cost of $10 per unit of output, and break-even volume of 50,000 units. What should the manufacturer's unit price be in order to have 50,000 target profit ?

Answer 1

Answer:

The manufacturer's unit price should be $12 in order to have 50,000 target profit

Explanation:

Data provided in the question:

Fixed costs = $100,000

Variable cost = $10 per unit

Break-even volume = 50,000 units

Now,

At breakeven point

Total cost = Total revenue

let the unit price be 'x'

Thus,

$100,000 + $10 × 50,000 = x × 50,000

or

$100,000 + $500,000 = x × 50,000

or

$600,000 = x × 50,000

or

x = $12

Hence,

The manufacturer's unit price should be $12 in order to have 50,000 target profit