Question

1. Executives of the Gateway Computer Company, Inc. have produced a new “MBA” personal computer for the rapidly expanding business student market. The following cost information pertains to the new computer:

Intel Processor and mother board .......................... $75

Monitor ................................................................. $175

Assembly & testing (direct labor) ......................... $150

Advertising and promotion ............................ $550,000

New machines and factory overhead ............ $400,000

Selling Price ......................................................... $900

Calculate the following: a. Contribution dollars per personal computer b. Break-even volume in units c. Break-even volume in dollars d. Net profit if 7,500 computers are sold e. Necessary computer unit volume to achieve $1,000,000 profit

Answer 1

contribution dollar per personal computer	selling price-variable cost per personal computer	900-400	500
variable cost per unit	75+175+150	400
break even volume in units	total fixed cost/contribution margin per unit	(550000+400000)/500	1900
Break even point in dollars	total fixed cost/contribution margin ratio	(550000+400000)/55.56%	1709863
contribution margin ratio	contribution margin per unit/selling price	500/900	55.56%
Income statement
sales revenue	7500*900	6750000
variable cost	7500*400	3000000
contribution margin		3750000
less total fixed cost		950000
net profit		2800000
break even volume in units to earn a profit of 1000000	(total fixed cost+target profit)/contribution margin per unit	(550000+400000+1000000)/500	3900