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11 November, 19:42

Breed Products has performed extensive studies on its costs and production and estimates the following annual costs based on 150,000 units (produced and sold):

Total Annual Costs (150,000 units)

Direct Material $200,000

Direct Labor $180,000

Manufacturing overhead $150,000

Selling, general, and administrative $100,000

Total = $630,000

a) Compute Breed's unit selling price that will yield a profit of $600,000, given sales of 150,000 units

b) Compute Breed's dollar sales that will yield a projected 20% profit on sales, assuming variable costs per unit are 60% of the selling price per unit and fixed costs are $225,000

c) Management believes that a selling price of $9 per unit is reasonable given current market conditions. How many units must Breed sell to generate the revenues (dollar sales) determined in requirement (b) ?

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  1. 11 November, 23:05
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    (a) $8.20

    (b) $1,125,000

    (c) 125,000

    Explanation:

    (a) Unit selling price:

    = (Total cost incurred + Desired profit) : Number of units sold

    = ($630,000 + $600,000) : 150,000

    = $8.20

    (b) Profit = Dollar sales - Variable cost - Fixed cost

    ($ sales * 20% profit) = $ sales - ($ sales * 60%) - $225,000

    ($ sales * 20% profit) = ($ sales * 40%) - $225,000

    $225,000 = ($ sales * 40%) - ($ sales * 20% profit)

    $225,000 = ($ sales * 20%)

    Dollar sales = $225,000 : 20%

    = $1,125,000

    (c) No. of units required to be sold:

    = Dollar sales : Selling price per unit

    = $1,125,000 : $9

    = 125,000
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