Question

Roadside Inc would like to launch a new solar powered flashlight for the hiking/camping market. The board of directors is dubious, and says that it will only approve the project if management can show the venture producing at least $175,000 in profit in the first year. Management estimates fixed costs at $292,359 for the first year. Variable cost will be $15.16 per unit, and a consultant thinks that the light could sell for $21.72 each. Calculate annual breakeven sales in UNITS for the solar powered flashlight while meeting the fixed profit target of $175,000. (Rounding: tenth of a unit.) show step by step how you got the answer.

Answer 1

Contribution per unit

Contribution per unit = Selling price per unit – Variable cost per unit

= $21.72 per unit - $15.16 per unit

= $6.56 per unit

Break-Even sales in units to attain target profit of $175,000

Break-Even sales in units to = (Fixed Cost + Target Profit) / Contribution Margin per unit

= ($2,92,359 + $175,000) / $6.56 per unit

= $4,67,359 / $6.56 per unit

= 71,243.8 units

“Therefore, the Break-Even sales in units to attain target profit of $175,000 would be 71,243.8 solar powered flashlights”