Question

Consider the following financial data for Fortnite Corp:

Projected Sales per month = 150,000 units

Selling Price = $19.95 per unit

Expenses:

Raw Material = $7.50 per unit

Assembly labor = $5.00 per unit

Operating Expenses = $125,000 per month

Marketing = $18,500

a.) What is the gross profit per unit? b.) What is the total indirect expense for the month? c.) What is the breakeven sales price per unit? d.) What is the breakeven volume (units/month) at a sales price of $14.95 per unit? e.) What should the unit sales price be to achieve a 33% NET profit?

Answer 1

a) Cost of goods sold per unit = Raw material per unit + Assembly labour per unit

= $7.5 + $5

= $12.5

Gross profit per unit = Selling price per unit - Cost of goods sold per unit

= $19.95 - $12.5

= $7.45

b. Total indirect expense for the month = Operating expenses + Marketing

= $125,000 + $18,500

= $143,500

c. Variable expenses per unit = Raw materials per unit + Assembly labour per unit

= $7.5 + $5

= 12.5

Fixed expenses = Operating expenses + Marketing

= $125,000 + $18,500

= 143,500

At the breakeven sales price, net profit will be Zero

Sales - Variable expenses - Fixed expenses = 0

(150,000 units * Sales price per unit) - (150,000 units * $12.5 per unit) - $143,500 = $0

Sales price per unit = $2,018,500 / 150,000 units

= $13.46

d. Contribution margin per unit = Sales price per unit - Variable expenses per unit

= $14.95 - $12.5

= $2.45

Breakeven volume = Fixed expenses / Contribution margin per unit

= $143,500 / $2.45

= 58,571 units

e. (150,000 units * Sales price per unit) - (150,000 units * $12.5 per unit) - $143,500 = 150,000 units * Sales price per unit * 0.33

(150,000 units * Sales price per unit) - (49,500 units * Sales price per unit) = $2,018,500

100,500 units * Sales price per unit = $2,018,500

Sales price per unit = $20.08