Question

A new aluminum part production facility opened for business, selling products for $9,000 each. The rent on the facility building is $5,000/month and additional utilities cost $15,000/month. The production line is open 24 hours every day of the month (calculate with 30 days per month). Each day has three 8-hour shifts with 10 workers present in each of these snifts. All workers get paid $30/hour. The materials used for your product cost $2,500/product. Your accountant advises you that your corporate taxes are estimated to be $500/product.

Calculate, how many products you must make and sell in one month to make a $1,000,000 profit per month.

Answer 1

Break-even point in units= 172 units

Step-by-step explanation:

Fixed costs= 5,000 + 15,000= $20,000

Direct labor cost= [(10*8)*3]*30= $7,200

Tax= $500 per unit

Direct material= $2,500 per unit

To calculate the number of units to be sold, we need to use the following formula:

Break-even point in units= (fixed costs + desired profit) / contribution margin per unit

Break-even point in units= (20,000 + 7,200 + 1,000,000) / (9,000 - 500 - 2,500)

Break-even point in units= 172 units

Prove:

Sales= 172*9,000= 1,548,000

Variable costs= 172*3,000= (516,000)

Contribution margin= 1,032,000

Fixed costs= 27,200

Net income= 1,004,800