Question

Your product unit costs are expected to be $2.50 per pair. Shipping and delivery costs to retailers are estimated at $1.70 per unit. In addition, you will have to pay commissions of $.30 per unit sold to the sales representatives. You want a “markup” of 50% and your retailers want desired a mark-up before their expenses of 40 percent In addition, you want a salary of $7,000 per month. Other administrative expenses will be $2,500 per month. Find the units needed to be sold to reach breakeven (the units that should cover the fixed expenses).

41,475

45,818

38,475

50,667

59,660

Answer 1

Answer :

Production cost = Unit costs + shipping and delivery costs + commission

= $2.5 + $1.70 + $0.30

= $4.5

Mark up cost = production cost * mark up percentage

= $4.50*50%

= $2.25

Selling price = Production cost + mark up cost

= $4.5 + $2.25

= $6.75

Contribution margin = Selling price - Production cost

= $6.75 - $4.5

= $2.25

Annual fixed costs = (Monthly salary expenses + other administrative expenses)*12

= ($7,000 + $2,500)*12

= $114,000

Break even units sold = Annual fixed costs / Contribution margin

= $114,000 / $2.25

= 50,666.6666667

Therefore, we should sell 50,667 units to be sold to break even

The correct option is 50,667

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