Question

Stuart Corporation is a manufacturing company that makes small electric motors it sells for $53 per unit. The variable costs of production are $35 per motor, and annual fixed costs of production are $396,000. Required How many units of product must Stuart make and sell to break even? How many units of product must Stuart make and sell to earn a $72,000 profit? The marketing manager believes that sales would increase dramatically if the price were reduced to $47 per unit. How many units of product must Stuart make and sell to earn a $93,600 profit, if the sales price is set at $47 per unit?

Answer 1

1. $22,000 units

2. $39,000 units

3. $40,800 units

Step-by-step explanation:

In this question we use the formula of break-even point in unit sales which is shown below:

1. Break even point

= (Fixed expenses) ÷ (Contribution margin per unit)

where,

Contribution margin per unit = Selling price per unit - Variable expense per unit

= $53 - $35

= $18

And, the other items values would remain the same

Now put these values to the above formula

So, the value would equal to

= ($396,000) ÷ ($18)

= $22,000 units

2.

Break even point = (Fixed expenses + target profit) ÷ (Contribution margin per unit)

where,

Contribution margin per unit = Selling price per unit - Variable expense per unit

= $47 - $35

= $12

And, the other items values would remain the same

Now put these values to the above formula

So, the value would equal to

= ($396,000 + $72,000) ÷ ($12)

= ($468,000) ÷ ($12)

= 39,000 units

3.

Break even point = (Fixed expenses + target profit) ÷ (Contribution margin per unit)

where,

Contribution margin per unit = Selling price per unit - Variable expense per unit

= $47 - $35

= $12

And, the other items values would remain the same

Now put these values to the above formula

So, the value would equal to

= ($396,000 + $93,600) ÷ ($12)

= ($489,600) ÷ ($12)

= 40,800 units