Issa Company is analyzing whether its new product will be profitable. The following data are provided for analysis:
Expected variable cost of manufacturing ..... $30 per unit
Expected fixed manufacturing costs ........ $72,000 per year
Expected sales commission .......... $6 per unit
Expected fixed administrative costs ........ . $12,000 per year
The company has decided that any new product must at least break even in the first year.

Use the equation method and consider each requirement separately.
a. If the sales price is set at $48, how many units must Issa sell to break even?
b. Issa estimates that sales will probably be 7,500 units. What sales price per unit will allow the company to break even?
c. Issa has decided to advertise the product heavily and has set the sales price at $54. If sales are 9,000 units, how much can the company spend on advertising and still break even?

  • CreatedFebruary 07, 2014
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