Question

Green Go Monitors is ready to release their new intelligent monitors. The variable cost for each product is $2,000. Fixed cost per year is estimated to be $100,000. If the company sells each product at a price of $2,500, how many products must be sold to break even? If the company sells 1,000 products at the price of $2,500, what will be the contribution to profit

Answer 1

Variable cost per unit is $2,000 Price per unit is $2,500 Therfore Gross Margin is $500 per unit (2500-2000)

Break-even is the number(x) of units for which, Total Revenue = Total Cost

In other words p*x = F +v*x where p is price per unit, F is fixed cost and v is per unit variable cost.

It can also be represented as x = F/(p-v) = Fixed cost / Gross Margin

Therefore in the present question Break-even = 100,000/500 = 200

If the company sells 1,000 products at the price of $2,500, Total Revenue = 1000*2500 = $2,500,000

Total cost = Fixed cost + Total variable cost = 100000 + 1000*2000 = $2,100,000

Contribution to Profit = Total Revenue - Total Cost = 2,500,000 - 2,100,000 =$400,000