Cos Cob Systems, Inc., makes heat-seeking missiles. It has recently been offered a government contract from which it may realize a profit. The contract purchase price is $130,000 per missile, but the number of units to be purchased has not yet been decided. The company’s fixed costs are budgeted at $4,035,000, and variable costs are $68,500 per unit.
1. Compute the number of units the company should agree to make at the stated contract price to earn a profit of $1,500,000.
2. Using a lighter material, the variable unit cost can be reduced by $1,730, but total fixed overhead will increase by $29,240. How many units must be produced to make $1,500,000 in profit?
3. Given the figures in 2, how many additional units must be produced to increase profit by $1,264,600?