George Fine, owner of Fine Manufacturing, is considering the introduction of a n
ID: 398346 • Letter: G
Question
George Fine, owner of Fine Manufacturing, is considering the introduction of a new product line. George has considered factors such as costs of raw materials, new equipment, and requirements of a new production process. He estimates that the variable costs of each unit produced would be $9 and fixed costs would be $65,100.
If the selling price of the product is set at $19 per unit, Fine Manufacturing expects to sell 13,600 units. What would be the total contribution to profit from this product at this price?
Explanation / Answer
Given values:
Fixed cost = $65,100
Variable cost = $9 per unit
Selling price = $19 per unit
Number of units sold = 13,600 units
Solution:
Profit is calculated as,
Profit = Total Revenue - Total costs
Total Revenue = Selling price x Number of units sold
Total Revenue = $19 x 13,600
Total Revenue = $258,400
Total costs = Fixed cost + Variable cost
Total costs = Fixed cost + (Variable cost per unit x Number of units sold)
Total costs = $65,100 + ($9 x 13,600)
Total costs = $187,500
Profit = Total Revenue - Total costs
Profit = $258,400 - $187,500
Profit contribution = $70,900
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