Question

Surfer Tom is going to sell his custom surfboards. He was able to rent a garage from his Uncle Ed for $1,200 a month, which includes utilities. He anticipates being able to sell his boards for $500 each. The raw materials (resin, foam, etc.) will cost an average of $150 for each board, and he plans to spend $50 per board to advertise them to local surfers. Assuming these are all the costs and revenues, what will be Surfer Tom’s monthly break-even point in units? Does this seem like a reasonable amount for him to produce and sell every month? Please show your calculations.

Answer 1

Selling Price = $500

Less: Variable Cost = $200 ( $150 Raw material + $50 Advertisement)

Contribution $300

Fixed Cost $1200 per month

Breakeven point in units = (Fixed Cost per month/Contribution)

=$1200 / $300

= 4 units

Yes. This would seem to be a fair sum for him to manufacture and sell each month. Selling only 4 units will cover the fixed leasing expense each month and then any excess is generated and sold will add to Tom 's income.

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