[CPALady18]

Can anyone help me out with this question:

Green Co. produces only Product Z. As part of the annual budgeting, Green is considering whether to produce a new product. Green’s CFO obtained information from various departments within the company. The plant manager expected the following costs would be incurred in producing the new product:

Direct materials $1 per unit
Direct labor $100 per hour
Fixed cost $55,000

The marketing manager decided to spend $2 per unit for the first 5,000 items sold with no additional costs after that. The marketing manager confirmed that the current market price for the new product was $4,000 per 1,000 units. The plant manager told the CFO that the employees would be able to produce 500 units per hour. Approximately how many units would Green have to sell to break even?

[CPALady18]

Can anyone please help with this? The answer is 23,215, but I cant figure out how they get it.

[23]

We know BE point FC = SP – VC

Fixed costs = $55000 + Marketing ($2 x 5000) = $65,000

Sales price = $4/unit ($4000/1000)

Variable costs = DM ($1/unit) + DL (100/500 = .2/unit) = $1.2 total

Putting it all together: 65,000 / 4 – 1.2 = 23,214.29 units or 23,215 rounded up.

WA candidate

[CPALady18]

Thank you so much!

[Author]

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