Question

Surfer Tom is going to sell his custom surfboards. He was able to rent a garage from his Uncle Ed for $1,200 a month, which includes utilities. He anticipates being able to sell his boards for $500 each. The raw materials (resin, foam, etc.) will cost an average of $200 for each board, and he plans to spend $60 per board to advertise them to local surfers. Assuming these are all the costs and revenues, what will be Surfer Tom’s monthly break-even point in units? Does this seem like a reasonable amount for him to produce and sell every month? Please show your calculations.

Answer 1

5 surfboards.

Yes, it is a reasonable amount that can be produced and sold every month.

Explanation:

Rent expense = $ (1200)

Price of Board = $ 500

Cost of raw materials per board = $200

Advertisement cost per board = $ 60

Let break even quantity of surfboard = y

At break even, total cost = total revenue ------------------------- (1)

Total cost per month = 1200 + 200y +60y

= 1200 + 260y--------------------------------------------------- (2)

Total Revenue per month = 500y----------------------------------------(3)

Equating (2) and (3) we have :

1200 +260y = 500y

500-260y = 1200

240y = 1200

y = 1200/240

y = 5 surfboards