III. The fixed cost of producing a certain product is $200,000; the varia unit i
ID: 351577 • Letter: I
Question
III. The fixed cost of producing a certain product is $200,000; the varia unit is S10; and the price is s20 per unit. All firms in th g 500,000 currently selling 1,200,000 units per year. The firm is currently selling units per year. Find the following (show all ealculations): (40 points) e industry are a. The contribution per unit (5 points) b. The contribution margin (5 points) Breakeven in units (5 points) c. d. Breakeven in dollars (5 points) e. The breakeven market share (10 points) The change in unit sales necessary to maintain the level of total contribution dollars if the price of the product is reduced by 25%. (10 points). f.Explanation / Answer
Fixed costs = 200,000 $
Variable costs = 10 $
Price = 20 $ per unit
Units = 500,000 units per year
a) Contribution per unit= Selling price – Variable cost = 20 – 10 = 10 $
b) Contribution Margin = 500,000(Selling price – Variable cost) = 5000,000 $
c) Breakeven in units = Fixed cost/Contribution margin per unit
= 200,000/10 = 20,000 units
d) Breakeven in dollars = Breakeven units*Selling Price = 20,000*20 = 400,000 $
e) Breakeven Market share = Breakeven units/Total units sold in the industry
= 20000/12,00,000 = 16.67%
f) If price is reduced by 25% then new price = 20*.75 = 15 $
Contribution Margin required = 10 $
New price = 10 + 15 = 25 $