Question

The marketing manager of TelCo., Inc. has determined that a market exists for a telephone with a sales price of $15 per unit. The production manager suggests that the fixed cost of producing between 20,000 and 40,000 telephones is $65,000. Assume that Telco desires to earn a $50,000 profit from the phone sales. How much can TelCo afford to spend on variable cost per unit if production and sales equal 30,000 phones

Answer 1

Answer: $11.17

Explanation:

Number of phones sold = 30000

Sales price = $15 per unit

We than calculate the total contribution required which will be:

= Total Fixed Cost + profit required

= $65000 + $50000

= $115,000

To calculate the variable cost per unit goes thus:

Number of phones sold = (Total Contribution Required)/(Sale Price - Variable cost per unit)

30000 = 115000/(15 - Variable cost per unit)

(15 - Variable cost per unit) = 115000/30000

(15 - Variable cost per unit) = 3.83

Variable cost per unit = 15 - 3.83 = 11.17

Variable cost per unit = $11.17