Question

The Ferris company is planning on launching a new product in the high tech market, Flux on Jan. 1st. They plan on pricing Flux at $44.00. The direct material cost is $19.00 and the direct labor is $10.00 per sensor. The total cost of equipment to produce Flux is $5,000,000. The equipment has no salvage value and is depreciated over 15 years. They are planning on having a promo budget of $1.5M and a sales budget of $1.2M. Assuming there is no inventory carrying costs and no other fixed costs, what will the net margin (net profit) be for Flux, if they sell 400,000 units of Flux?

Answer 1

The net margin (net profit) for Flux, if 400,000 units are sold, would be -$1,700,000.

Step-by-step explanation:

To calculate the net margin (net profit) for Flux, we need to consider the revenue and expenses. The revenue from selling 400,000 units of Flux at a price of $44.00 per unit would be $17,600,000 ($44.00 x 400,000). The total cost of production can be calculated by adding the direct material cost and direct labor cost per unit: ($19.00 + $10.00) x 400,000 = $11,600,000. The total cost of equipment and the promo and sales budgets are considered fixed costs and do not change with the number of units sold.

The net margin can be calculated by subtracting the total cost of production and fixed costs from the revenue: $17,600,000 - $11,600,000 - $7,700,000 = $-1,700,000.

The net margin for Flux, if 400,000 units are sold, would be -$1,700,000.