Question

RB business produces two main types of routers, Model A and the more expensive, Model B. RB business has a capacity of producing 500 Model A routers per month and currently produces 300 routers of that type every month. The routers are sold to small computer stores. RB business's expenses are given below and unit A price is $115, also given below.

What are the contribution margin and the contribution rate?

What is the break-even point in units? At their current level of production, how many units above or below the break-even point is RB's business is working at?

How much profit per month would be earned at the current level of production? At the current level of production what percent of capacity is utilized?

What is the BE volume as a percent of current production [use the rounded number of BE units]? What is the BE volume as a percent of capacity [use the rounded number of BE units]?

RB business has decided to increase its production from the current 300 routers per month to 425 routers per month, while at the same time lowering its selling price to $85. How would this change the company’s profit?

A chain store wants to purchase additional routers from RB business on a regular basis. To meet the new demand, RB business expanded their facility by renting additional space. This increased their total fixed cost by 30% and doubled their capacity to 1200 units. RB business wants to break-even at 25% of this new capacity. What is the lowest price they can charge per router and still break-even?

Expenses and unit price is provided, please use those to answer the question and do not assume the price or ignore the values to solve the questions. I am looking for help and i keep getting same answer from another question which is not related to mine. please help only if you can solve this using all the values provided. Thank You.

Lease 1650 per month

Salaries 1050 per month

Other Expenses 850 per month

Materials 6 per unit

Labour 8 per unit

Sell Price 115 per unit

Answer 1

1. What are the contribution margin :

Selling price - Variable Cost

101 = 115(Selling price)-8(Material)-6(Labor)

2. What are the Contribution Rate

Contribution Margin / Sales Price

=87.83% (101/115*100)

3. What is the break-even point in units?

Fixed Cost / Contribution Margin per unit

35 Unit (Rounded for 35.14 = 3550/101

Fixed costs
Lease	1,650.00
Salaries	1,050.00
Other Expenses	850.00
Total Fixed Cost	3,550.00

4. At their current level of production, how many units above or below the break-even point is RB's business is working at?

265 (300-35) units above break even point

5. How much profit per month would be earned at the current level of production?

Profit = Contribution per unit * number of unit produced - Fixed Cost

26,750 = 101*300-3,550

6. At the current level of production what percent of capacity is utilized?

60% (300/500)

7. What is the BE volume as a percent of current production [use the rounded number of BE units]?

11.67% (35/300)

8. What is the BE volume as a percent of capacity [use the rounded number of BE units]

7% (35/500)

9. RB business has decided to increase its production from the current 300 routers per month to 425 routers per month, while at the same time lowering its selling price to $85. How would this change the company’s profit?

Selling price	85.00
Material	6.00
Labor	8.00
Contribution	71.00

Profit = Contribution per unit*number of unit sold - fixed cost

26,625 = 71*425-3,550

Change in Profit = Current Profit - Earlier Profit

Reduction in profit by 125 = 26,625-26,750

10. A chain store wants to purchase additional routers from RB business on a regular basis. To meet the new demand, RB business expanded their facility by renting additional space. This increased their total fixed cost by 30% and doubled their capacity to 1200 units. RB business wants to break-even at 25% of this new capacity. What is the lowest price they can charge per router and still break-even?

3,050.00	Existing fixed cost
915.00	30% Increase in fixed cost
3,965.00	Total Fixed Cost

Target Break even units = 300 (1200*25%)

Contribution per unit required to break even at 300 units = Fixed cost / 300

13.21 per unit contribution required (3,965/300)

Minimum selling price would be 27.21 to break even at 300 unit (after adding material and labor to contribution margin)