Question

The costs and revenue projections for a new product are estimated. What is the estimated profit at a production rate of 20% above breakeven?

Fixed cost = $516,000 per year

Production cost per unit = $191

Revenue per unit = $294

The estimated profit is determined to be

Answer 1

The profit is computed as shown below:

Break even number of units is computed as follows:

= Fixed cost / (revenue per unit - production cost per unit)

= $ 516,000 / ($ 294 - $ 191)

= 5,009.708738 units

So, the units above 20% will be as follows:

= 5,009.708738 units x 1.20

= 6,011.650486 units

So, the estimated profit will be computed as follows:

= 6,011.650486 units x (revenue per unit - production cost per unit) - fixed cost

= 6,011.650486 units x ($ 294 - $ 191) - $ 516,000

= $ 103,200

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