Question

Warner Clothing is considering the introduction of a new baseball cap for sales by local vendors. The company has collected the following price and cost characteristics.

Sales price	$	15	per unit
Variable costs		3	per unit
Fixed costs		42,000	per month

a. What number must Warner sell per month to break even?

b. What number must Warner sell per month to make an operating profit of $30,000?

Answer 1

a)	Warner must sell per month to break even	3500	Units
	Woking Note:
	Break even units = Fixed cost / contribution margin per unit
	=42000 / 12
	3500
	Contribution margin = selling price - variable cost
	=15-3
	12
b)	Warner must sell per month for Op. PROFIT of $30,000	6000	Units
	Target Units = (Target Profit + Fixed cost) / Contribution per unit
	=(42000 + 30000)/12
	6000