If the unit variable cost for each computer is $350 and the manufacturer has fixed costs totaling $2 million, how many computers must this manufacturer sell to break even? How many must it sell to realize a profit of $50 million?
One external factor that manufacturers must consider when setting prices is reseller margins. Manufacturers do not have the final say concerning the price to consumers; retailers do. So manufacturers must start with their suggested retail prices and work back, subtracting out the markups required by resellers that sell the product to consumers. Once that is considered, manufacturers know at what price to sell their products to resellers, and they can determine what volume they must sell to break even at that price and cost combination. To answer the following questions, refer to Appendix 2.