EcoCars manufactures a new ultra-sporty electric vehicles targeted to MBAs and o

Question

EcoCars manufactures a new ultra-sporty electric vehicles targeted to MBAs and other higher-earning professionals. EcoCars’ management has asked you to help the firm identify its EBDAT breakeven level. The company has only one product, the eBolt. The firm’s cars sell for $52,000 each (all production is outsourced to an external manufacturer). Each car costs $44,200 in materials and manufacturing costs. The firm’s office lease in Silicon Valley is $1.2 million annually. Its marketing and advertising expense is $2.5 million per year, and salaries and insurance run $2.3 million annually. Complete the following, and show all your calculations for each. Part 1: Calculate the firm’s 1) EBDAT revenue, and 2) contribution profit margin at EBDAT breakeven. Part 2: If the firm sells 575 vehicles, what will be its 3) gross profit percentage, 4) operating income, and 5) operating income percentage? (Show all calculations)

Explanation / Answer

Hi,

Please find the correct answers as follows:

EBDAT = Revenue - Variable Costs - Cash Fixed costs

= 575*52000-575*44200-2300000

=$2185000

Gross profit percentage = (575*52000-575*44200)/(575*52000)

=15%

Operating income = 575*52000-575*44200-2300000-1200000

=$985000

operating income percentage = 985000/(575*52000)

3.29%

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