Question

An appliance store finding that the contribution margins on appliances are not adequate to achieve performance targets might introduce an extended warranty plan to provide an additional source of contribution margin. A company selling generators may institute an every-six-month service plan that promises both preferential service in a power outage to the customer and considerable contribution margin to the seller to augment the margin associated with the sale of the generator. And, of course, lemonade stand operators might decide to sell pretzels in addition to lemonade. Assume the following base case (per questions A1 and A2): revenue is $100 per unit, variable costs are $20 per unit, and total fixed costs are $40,000. A complementary product/service is being introduced. The product being introduced will use existing resources; however, some additional new costs will be incurred. This product/service will generate additional revenue of $60 per unit, additional variable costs of $16 per unit, and additional fixed costs of $16,240. For every 10,000 original units, the enterprise expects to sell 2,000 complementary units. How many complementary units does the company need to sell to break even

Answer 1

Break-even point in units= 369 units

Step-by-step explanation:

Giving the following information:

Selling price per unit= $60

Unitary varaible cost= $16

Fixed costs= $16,240

To calculate the break-even point in units for the complementary product, we need to use the following formula:

Break-even point in units= fixed costs/ contribution margin per unit

Break-even point in units= 16,240 / (60 - 16)

Break-even point in units= 369 units