Question

An apparel manufacturing plant has estimated the variable cost to be $2.40 per unit. Fixed costs are $2,000,000 per year. Forty percent of its business is with one preferred customer and the customer is charged at cost. The remaining 60% of the business is with several different customers who are charged $50 per unit. Find :
(a) The break even volume for this job.
(b) The unit cost if 100,000 units are made per year.
(c) The annual profit for this quantity(100,000 units)

Answer 1

Answer:

BEP units:          42,017

BEP dollars: 2,100,850

unit cost at 100,000 units produced: 22.40 dollars

operating profit :    1,656,000

Explanation:

$Sales \: Revenue - Variable \: Cost = Contribution \: Margin$

50 - 2.4 = 47.6 contirbution margin per unit

$\frac{Fixed\:Cost}{Contribution \:Margin} = Break\: Even\: Point_{units}$

2,000,000/47.6 = 42.016,80 BEP units

BEP units x sales price = BEP dollars

42,017 x 50 = 2,100,850

(B)

fixed cosy/ units produced = fixed cost per unit

2,000,000/ 100,000 = 20 fixed cost per unit

fixed cost + variable cost = total cost

20 + 2.40 = 22.4

(C)

There are 40% units sold at the preferred customer at cost

So we sale at gain only 60% of the units:

100,000 units x 60% x 50       =  3,000,000

100,000 units x 40% x 22.40  =     896,000

Total revenue                              3,896,000

Cost: 100,000 x 22.40               (2,240,000)  

operating profit                            1,656,000