Question

The produce each product unit, the company spends $2.35 on material and $3.15 on labor. ItS total fixed cost is $6000. Each unit sells for $7.35. What is the smallest number of units that must be sold for the company to realize a profit?

Answer 1

To find the smallest number of units that must be sold for the company to realize a profit, calculate the break-even point. The break-even point is found by dividing the total fixed cost by the contribution margin per unit. The answer is approximately 3243 units.

Step-by-step explanation:

To calculate the number of units that must be sold in order for the company to realize a profit, we need to determine the break-even point. The break-even point is the level of production where total revenue equals total cost.

First, let's calculate the total cost per unit:

Total cost per unit = Material cost + Labor cost = $2.35 + $3.15 = $5.5

Next, let's calculate the contribution margin per unit:

Contribution margin per unit = Selling price - Total cost per unit = $7.35 - $5.5 = $1.85

To find the break-even point, divide the total fixed cost by the contribution margin per unit:

Break-even point = Total fixed cost ÷ Contribution margin per unit = $6000 ÷ $1.85 ≈ 3243

Therefore, the smallest number of units that must be sold for the company to realize a profit is approximately 3243 units.