Question #3 Breakeven A production manager has obtained the following estimated

Question

Question #3 Breakeven A production manager has obtained the following estimated costs/revenues for producing a new orbital impact wrench. Their plan is to produce that particular model wrench for 5 years. Yearly Sales 3,000 units/year Sales Price $350/unit Variable Cost $85/unit Initial Investment $750,000 Annual maintenance $300,000 (to refresh tools after each 12 months of use) (5) A. Does the company break even during year 1, Yes or No? (5) B. How much total profit does the company make over the 5-year period?

Explanation / Answer

1 Yes Sales Price 350 Variable cost 85 Contribution per unit 265 Fixed cost 300000 Break-even                      1,132.08 Fixed cost / Contribution per unit 2 Profit for one year Sales 1050000 Variable Cost 255000 Contribution 795000 Less Fixed cost 300000 Profit 495000 For 5 years 2475000

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