Projected cost information for a new product to be introduced by Melton Manufacturing is as follows:
Expected variable unit costs:
$
Direct materials ................................... 11.00
Direct labour ...................................... 5.60
Selling expenses .................................. 2.00
Expected annual fixed costs:
$
Rent of building ................................... 28 000
Manager's salary................................... 60 000
Maintenance contract ............................. 15 500
Administrative expenses ......................... 20 500
The product is to be sold for $40.00 per unit.
a) Compute the number of units that must be sold to breakeven.
b) Compute the number of units that must be sold if administrative expenses rise to $35 000, selling expenses fall by 50c a unit and a target profit of $120 000 is required.
c) Calculate the profit that would be earned if 8000 units of the new product were sold. Assume that the costs remain the same as in the original estimates.