Question

An apparel manufacturing plant has estimated the variable cost to be $21 per unit. Fixed costs are $1M per year. Forty percent of its business is with one preferred customer and the customer is charged at cost(without profit). The remaining 60% of the business is with several differant customers and they are charged $40 per unit. Find.

a.The break even volume for this job.
b.The unit cost if 100,000 units are made per year.
c.The annual profit for this quantity(100,000 units).

Answer 1

a. Break Even Profit = Fixed Cost / Contribution Per Unit

Fixed Cost = $1,000,000

Contribution Per Unit = 40 - 21 = $19 Per Unit

Break-even Profit = 1,000,000 / 19 = 52,631.57 Units

b. Unit Cost = $21 Per Unit

Applied Fixed Cost= 1,000,000 / 100,000 = $10 Per Unit

Total Cost = Unit cost + Applied fixed cost = $21 per unit + $10 per unit = $31 Per Unit

c. Annual Profit:

Sales $3,640,000

(60,000 x 40) (40,000 x 31)

Less: Variable Cost $2,100,000

Less: Fixed Cost $1,000,000

Profit $540,000