[jayb09]

If Someone could please help me. I'm not looking for the answer just need to know how to do this

Direct Materials $5 per unit
Direct Labor $8 per unit
Variable Manufacturing overhead $3 per unit
Variable selling and administrative expenses $2 per unit
Fixed Expenses $80,000

1. Assuming that Newman will sell 55,000 units. What sales price per unit will be needed to achieve a $75,000 profit?

2. Assuming that Newman decides to see its product for $23 per unit, dermine the break even sales volume in dollars and units

3. Assuming that Newman decides to sell its product for $23 per unit, determine the number of units it must sell to generate a $100,000 profit.

I am guessing that based off the CVP equation = sales -variable = contribution = fixed costs-proft.

I think that I would take all of the variable costs X Fixed costs. So my example would be

Direct Materials $5 per unit x 80,000 = 4000
Direct Labor $3 per unit x 80,000 = 2400

After adding all of the Variable Cost together then subtract from Fixed Expense? Am I heading in the right direction? PLEASE HELP!!

[ebaines]

I am guessing that based off the CVP equation = sales -variable = contribution = fixed costs-proft.

The right side of the equation is not right: it should be contribution = fixed cost + profit.

For the first part of the question you are looking for price/unit. Sales revenue = Number of units sold x price/unit, or 55,000 x price/unit.
Variable costs = number of units sold x sum of all variable costs/unit, or 55,000 x (5+8+3+2).
Fixed costs you are told are $80,000.
Profit you are told is $100,000.

Put these 4 values into the corrected equation and solve for price/unit.

For the second question - break even is when profit =0. Use the same formula, like this:

Volume x $23/unit - Volume x (5+8+3+2) = $80,000 + $0. Solve for volume.

Now, can you do the third part on your own?

[jayb09]

So If I am understanding you correctly
The equation I figured out would be this

Sales = 990, 000 - Variable 990,000 = Contribution 0= Fixed Costs 80,000 + Profits = 180,000. To get the unit price I would divide the total number of sold units 55,000/180,000 = 3.27

Am I correct or way off? I'm sorry but Math is not a strength for me

Thanks for all your help!

[ebaines]

I'm sorry, Jay, but I'm not following you. You should be able to see that if you priced the item at $3.27 and it has variable costs of $18/unit you will never make a profit, so clearly $3.27 can't be the answer.

What you have for the first question is:

Sales - variable costs = fixed costs + profit, or:

(55,000 x Price) - (55,000 x $18) = $80,000 + $75000.

Solve for Price.

[jayb09]

I can see the formula but I am still confused because I don't understand how you come up with the unit price by the equation presented. If I understand this I would need to know the price unit prior to being able to complete the equation. I don't understand how you come up with the sales per unit price. Am I missing something?

[ebaines]

Simple algebra: you have an equation with one unknown; rearrange it to solve for Price.

Starting with:
(55000 x Price) - (55000 x 18) = 80000 +75000

55000 x Price = 80000+75000 +(55000 x 18)

Price = (80000 +75000+(55000 x 18))/55000. Plug this into your calculator to compute Price.

Do you see?

[jayb09]

Thank you that really helped. So here is what I have

Price = (80,000 + 75,000 (55,000 x 18))/55,000

155,000 + 990,000 = 11450000/155,000 = 9.956
Round off is 10

[ebaines]

Recheck your math - I think you divided 1,145,000 by 115,000 instead of 55,000.

As before, if you end up with an answer that says your price is less than your variable cost, you know there must be an error.

[jayb09]

I see 20.18. Thanks so much!! It has finally registered!