The selling price per unit of a product is achieved by dividing total sales or contribution by the number of units produced. For the electronic product and accessories company, the total projected units to be produced were 80000 units of the product .The controller of the company company’s controller Mr. John Huxley when met with George explained that in order to help make the figures friendly he prepared the unit cost data for AOK Play at a level of production of 80’000 units which according to the production manager he consulted represents nearly 70% of the available capacity for the product (Note that optimum capacity is around 80%-85%).
The selling price per unit of the product was as follows; contribution + total costs, divided by the number of units. =2500000 + 4100000 = 6600000 / 80000 = 82.5 dollars per unit.
The fixed cost per unit produced is arrived at by dividing the total expected fixed cost by the total expected units to be produced. This is done as follows;
Total fixed cost = 2100000 and total units to be produced = 80000. Therefore fixed cost per unit = 2100000 / 80000 = 26.25
The total cost per unit is arrived at by dividing the total costs both fixed and variable by total number of units projected to be produced. The total cost was 4100000 while the total units to be produced were 80000. Therefore the total cost per unit of this product will be 4100000 / 80000 = 51.25 dollars per unit.
Direct materials10.00 *80000 = 800000
Direct wages7.50 *80000 = 600000
Other direct expenses7.50 *80000 = 600000
Production1,000,000
Administration600,000
Marketing and advertising500,000
Total costs = 4,100,000
The total amounts of expected contribution by the product assuming that all the entire output was sold was 2’500,000
Contribution margin is an accounting term, which enables various companies to determine on how individual products are productive in a certain company. For instance, the contribution margin is a gross operating margin of a particular product. It is arrived at by subtracting products variable costs, from the products price. In the case of the above company, product price was 82.5 dollars while the total variable costs were 18.75 dollars per unit. Therefore, the contribution margin = 82.5 -18.75 = 63.75 dollars per unit.
The first round projections director of the company Mr. Huxley meet with George the manager in control of the latest product and explain that in order to aid in creating the facts responsive he equipped data which shows unit cost for AOK Play for 80000 unit’s height of invention. These 80000 units produced is around seventy percent of the capacity available for the product.
The expected profit of the preliminary projections in units is calculated as follows. The expected contribution less fixed costs, divided by total number of units. Therefore, the expected contribution =
2500000 dollars, the total fixed costs = 2100000 dollars. Profits in dollars = 2500000 – 2100000 = 400000 dollars.
One unit gives a profit of 400000 / 80000 =5 dollars
The break-even point is the amount of product it needs to be …