Question

If the unit variable cost for each computer is $350 and the manufacturer has fixed costs totaling $2 million, how many computers must this manufacturer sell to break even? How many must it sell to realize a profit of $50 million?

Answer 1

1) If the unit variable cost for each computer is $350 and the manufacturer has fixed costs totaling $2 million, how many computers must this manufacturer sell to break even?

Breakeven= Total Fixed Cost / Contribution

Contribution = Selling price - Variable cost 

Breakeven =$2,000,000 / ($800 -$ 350)

Breakeven = 4444.44 Units or 4445 Units

2) How many must it sell to realize a profit of $50 million?

Unit volume = (Fixed cost + Profit goal) / (Selling price - Variable cost)

Unit Volume = ($2,000,000 + $50,000,000 )/ ($800 - $350)

Unit Volume = 115555.5 Units or 115556 Units