Question

To-Air-is-Human, Inc. (TAH) manufactures lightweight unpowered and human-powered aircraft. They have decided to produce a brand-new low-cost two-seater glider kit for the consumer market, which they will sell direct to the consumer.  They will have a dedicated facility that they rent for $100,000 for the year. They will also rent two large molding machines for fabrication of the glider hull at $4500 apiece. The production line will be manned by four skilled workers, whose salaries total $115,000 for the year. Hull parts will total 680 lbs. of high-grade aluminum, which may be purchased at a delivered price of $2300/ton. Other parts will be contracted for inclusion in the kit: four windows per plane at $95 per window, two padded seats (with built-in seat assembly) at $110 apiece, steering mechanism at $225, all ailerons and louvers in a set for $400, and fixed landing gear for $175. The crate for shipping the product costs $40 for a single kit, and all shipping costs are assumed by the consumer. Advertising in a glider enthusiast magazine costs $500 for the year.  The advertised price will be $6999. How many glider kits does TAH have to sell in order to break even?

Follow up question: Neiman-Marcus wants to sell the TAH glider exclusively through their upscale Christmas catalog, and is willing to buy 120 of them from TAH, if TAH will chip in $16,000 for the catalog distribution. If all other parameters (except Q , of course, and the fact that they would no longer advertise in the magazine) from part A are the same, what breakeven price should TAH charge Neiman Marcus?

Answer 1

Cost Analysis of the Glider produced by TAH
Variable Cost
	Alluminium Purchase
	680 pounds at $2300 per ton		$782.00
	4 windows 95X4		$380.00
	2 built-in seat 2X110		$220.00
	Steering Mechanism		$225.00
	Ailerons and louvers		$400.00
	Landing Gear		$175.00
	Shipping crate		$40.00
	Total		$2,222.00
Fixed Overheads
	Rent ( Facility)		$100,000.00
	Rent ( Moulding Machines
	( 2X4500)		$9,000.00
	Salaries
	( 4SkilledWorkers		$115,000.00
	Advertising		$500.00
	Total		$224,500.00
	Let X be the number of gliders manufactured to breakeven
	Selling Price Given		$6,999.00
	Variable cost		$2,222.00
	Contribution per glider		$4,777.00
	Fixed Cost		$224,500.00
	Breakeven Nos Glider= Fixed Cost/Contribution per glider
	=224500/4777      =		46.9960226
			or say 47 gliders
	Let us Say 47 Gliders
	Follow up Question
	To Calculate Breakeven Sales Price to Neiman-Marcus
	Breakeven Price= ( Fixed Cost + Variable Cost)/ Quantity
	Variable Cots = 120*2222		$266,640.00
	Fixed Cost is 224500- $500( Advertising cost+$16000 for Catalogue Distribution		$240,000.00
	Breakeven Price= ( Fixed Cost + Variable Cost)/ Quantity
	= (240000+266640)/120		$4,222.00
	Therefore Breakeven Sales Priceto Neiman Marcus is $4222