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Anna35 [415]
3 years ago
11

Spencer Tools would like to offer a special product to its best customers. However, the firm wants to limit its maximum potentia

l 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?
a. 3,220 units
b. 3,249 units
c. 2,815 units
d. 4,233 units
e. 4,658 units
Business
1 answer:
pochemuha3 years ago
6 0

Answer:

b. 3,249 units

Explanation:

Step 1. Given information.

Fix costs are 32.000

Depreciation expense 9.700

Contribution margin 9.85

Step 2. Formulas needed to solve the exercise.

Break even point = Fixed cost / contribution per unit

Step 3. Calculation.

Break even point= $32.000/$9.85= 3,248.73 rounded to 3,249

Step 4. Solution.

3.249 units is the minimum number of units to ensure its potential loss does not exceed the desired level

Option B is correct i.e. 3.249 units

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