5. A company plans to manufacture a product and sell it for $3.00 per unit. Equi

Question

5. A company plans to manufacture a product and sell it for $3.00 per unit. Equipment to f $12,000 at manufacture the product will cost $250,000 and will have a net salvage value o the end of 15 years. The equipment can manufacture up to 2,000,000 units per year. Direct labor costs are $0.25 per unit, direct material costs are $0.95 per unit, variable expenses are $0.45 per unit, and fixed overhead costs are $200,000, not including depreciation. If capital investments and return on the investment are excluded, what is the number of units that the company must manufacture and sell in order to break even with all other (a) costs? (10 points) (b) If straight-line depreciation is used, what is the number of units that the company must manufacture and sell to yield a before-tax profit of 20967 (10 points)

Explanation / Answer

The cost is

Cost = $200,000 + ($0.25)(no. of units) + ($0.85)(no. of units) + ($0.25)((no. of uniots) = = $200,000 + ($1.35)(no. of units)

revenues= ($3.00)(no. of units)

$200,000 + ($1.35)(no. of units)= ($3.00)(no. of units)

no. of umts = $200,000 / ($3.00 - $1.35) = 121,212

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