• If you can sell a product for $67 and it costs you $28 per unit to produce, wh

Question

•   If you can sell a product for $67 and it costs you $28 per unit to produce, while also paying $3,900 per month in fixed expenses, how many units must you sell each month in order to earn a monthly profit of $2,500? Show all your work.

Using the information from the first problem, your variable costs per unit include labor ($18) and parts ($10). Your fixed costs include maintenance of $750, rent and utilities of $2000, and administration costs of $1150. If you have a labor issue and your costs might vary by $2 next month; and you might have a major repair issue that will add $500; and your administrative costs might vary by 10%. Which is the most important issue to focus on? Conduct a sensitivity analysis of the situation and show all of your work.

Explanation / Answer

Solution:

Part 1 ---

Number of Units to be sold to earn $2,500 monthly profit = (Total Fixed Cost + Desired Profit) / Contribution Margin Per Unit

Contribution Margin per unit = Unit Selling Price 67 – Unit Variable Cost $28 = $39

Number of Units to be sold to earn $2,500 monthly profit = (Total Fixed Cost 3,900 + Desired Profit 2,500) / Contribution Margin Per Unit $39

= 6,400 / 39

= 164.10 or 164 Units

Part 2 --- Pls provide format for sensitive analysis

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