Question

Derby Phones is considering the introduction of a new model of headphones with the following price and cost characteristics:

Sales price	$	355	per unit
Variable costs		140	per unit
Fixed costs		451,500	per month

Required:

a. What number must Derby sell per month to break even?

Break even sales in units

b. What number must Derby sell to make an operating profit of $279,500 for the month?

Number of units sold

Answer 1

• All working forms part of the answer
• Requirement ‘a’

A	Sales Price per unit	$                                         355.00
B	Variable cost per unit	$                                         140.00
C = A - B	Contribution margin per unit	$                                         215.00
D	Fixed Cost	$                                 451,500.00
E=D/C	Break Even sales in units	2,100

Answer = 2,100 units = Break Even in Units

• Requirement ‘b’

A	Target Operating profits	$                                 279,500.00
B	Fixed Cost	$                                 451,500.00
C = A+B	Total contribution required for target operating profits	$                                 731,000.00
D	Contribution margin per unit	$                                         215.00
E = C/D	No. of units to be sold to earn target operating profits	3,400

Answer = 3400 units to be sold to earn target operating profits of $ 279,500