Techno Designs produces head covers for golf clubs. The company expects to gener

Question

Techno Designs produces head covers for golf clubs. The company expects to generate a profit next year. It anticipates fixed manufacturing costs of $126,500 and fixed general and administrative expenses of $82,030 for the year. Variable manufacturing and selling costs per set of head covers will be $4.65 and $2.75, respectively. Each set will sell for $13.40
1.Compute the breakeven point in sales units
2.Compute the breakeven point in sales dollars
3.In the selling price is increased to $14 per unit and fixed general and administrative expenses are cut by $33,465, what will the new breakeven point be in units?

Explanation / Answer

1. Variable costs are $7.40 per unit. Each unit sold will contribute $13.40 - 7.40 or $6.00 to the fixed costs. Total fixed costs are $208530, so dividing that by $6 per unit will give you 34,755 units. 2. 34,755 * 13.40 = $465,717. 3. If selling price increases to $14, each unit sold will contribute $14 - 7.4 or $6.60 towards the fixed costs. Total fixed costs are now $159965. 159965/6.6 = 24237.1 units or rounded up to 24238 units.

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