Vernon Corporation is a manufacturing company that makes small electric motors i

Question

Vernon Corporation is a manufacturing company that makes small electric motors it sells for $52 per unit. The variable costs of production are $28 per motor, and annual fixed costs of production are $576,000. Required How many units of product must Vernon make and sell to break even? How many units of product must Vernon make and sell to earn a $72,000 profit? The marketing manager believes that sales would increase dramatically if the price were reduced to $46 per unit. How many units of product must Vernon make and sell to earn a $72,000 profit, if the sales price is set at $46 per unit?

Explanation / Answer

1)Units to breakeven = Fixed cost /(price- variable cost)

                    = 576000/(52-28)

                    = 576000/ 24

                   = 24000 units

2)Target unit sales =[fixed cost+ target profit ]/[price-variable cost]

           =[576000+72000]/[52-28]

            = 648000/24

          = 27000 units

3)Target unit sales = [576000+72000]/[46-28]

                = 648000/18

                 = 36000 units

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