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24 December, 19:24

Warner Clothing is considering the Introduction of a new baseball cap for sales by local vendors. The company has collected the following price and cost characteristics: Sales price $18 per unit

Variable costs 2 per unit

Fixed costs 52,000 per month

Required:

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

b. What number must Warner sell per month to make an operating profit of $40,000?

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Answers (1)
  1. 24 December, 19:49
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    (a) 3,250 units

    (b) 5,750 units

    Explanation:

    (a) BEP (units):

    = fixed cost : contribution margin per unit

    = $52,000 : ($18 - $2)

    = 3,250 units

    Therefore, the 3,250 units must Warner sell per month to break even.

    (b) BEP (units):

    = (fixed cost + target profit) : contribution margin per unit

    = ($52,000 + $40,000) : $16

    = 5,750 units

    Therefore, the units must Warner sell per month to make an operating profit of $40,000 is 5,750 units.
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