Question

speedy industries has fixed costs of $650,000. the selling price per unit is $250, and the variable cost per unit is $120. required: a. how many units must speedy sell in order to break even? units b. how many units must speedy sell in order to earn a profit of $390,000? units c. an employee suggests that speedy industries sponsor a 5k marathon as a form of advertising. the cost to sponsor the event is $6,500. how many more units must be sold to cover this cost? units

Answer 1

a) 5000 units

b) 3000 units

c) 26

Step-by-step explanation:

a) Break even = total fixed costs ÷ contribution

Contribution per unit = selling price per unit - variable cost per unit = 250 - 120 = $ 130

Break even = 650,000 ÷ 130 = 5000 units.

b) profit = revenue - cost.

We do not know the quantity beinf sold for now so we can't calculate variable cost. Let's assume the quantity being sold is Q.

Total cost = total fixed costs + total variable costs = 650,000 + 120Q

Revenue = selling price × quantity = 250Q

Total Revenue - Total Cost = Profit

250 Q - 120 Q = 390,000

130 Q = 390,000

Q = 390,000 ÷ 130 = 3000 units

c) Additional cost = 6500

Additional revenue to be earned (to cover cost) = 6500

250 Q = 6500

Q = 6500 ÷ 250 = 26