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Derby Phones is considering the introduction of a new model of headphones with the following price and...

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Question

Accounting

Derby Phones isconsidering the introduction of a new model of headphones with thefollowing price and cost characteristics:

Sales price$355per unit
Variablecosts140per unit
Fixed costs451,500per month

Required:

a.What number must Derby sell per month to break even?

Break even sales inunits


b. What number must Derby sell to make anoperating profit of $279,500 for the month?

Number of unitssold

Answer & Explanation Solved by verified expert
4.4 Ratings (688 Votes)

  • All working forms part of the answer
  • Requirement ‘a’

A

Sales Price per unit

$                                         355.00

B

Variable cost per unit

$                                         140.00

C = A - B

Contribution margin per unit

$                                         215.00

D

Fixed Cost

$                                 451,500.00

E=D/C

Break Even sales in units

                                               2,100

Answer = 2,100 units = Break Even in Units

  • Requirement ‘b’

A

Target Operating profits

$                                 279,500.00

B

Fixed Cost

$                                 451,500.00

C = A+B

Total contribution required for target operating profits

$                                 731,000.00

D

Contribution margin per unit

$                                         215.00

E = C/D

No. of units to be sold to earn target operating profits

                                               3,400

Answer = 3400 units to be sold to earn target operating profits of $ 279,500
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