Woody’s widget shop has the following information: The average widget has a sales price of $18; raw
materials for the widget are $4; it takes 30 minutes to assemble one widget; and production labor is
paid $8 per hour. Operating expenses are as follow: salaries, $2,500 per week; insurance, $1,200 per
quarter; rent, $3,000 per month; and utilities, $1,000 per month.
a. How many widgets must be sold each month in order to break even?
Answer:
Let the number of widget be X
Unit contribution margin = Average sales price – Variable costs
= $18 – ($4 + $8)
= $6
Fixed costs = $2,500 + $1,200 + $3000 + $1000 = $7,700
Number of widgets = Fixed costs/Unit contribution margin
= $7,700/$6
= 1283.33 ~ 1283 widgets
b. How many dollars in sales does this represent?
Answer:
Sales in dollars = 1283*$18 = $23,100
c. what is the contribution margin for each widget sold?
Answer:
Unit contribution margin = Average sales price – Variable costs
= $18 – ($4 + $8)
= $6
d. If the goal is to make $100,000 profit per month, how many widgets must be sold?
materials for the widget are $4; it takes 30 minutes to assemble one widget; and production labor is
paid $8 per hour. Operating expenses are as follow: salaries, $2,500 per week; insurance, $1,200 per
quarter; rent, $3,000 per month; and utilities, $1,000 per month.
a. How many widgets must be sold each month in order to break even?
Answer:
Let the number of widget be X
Unit contribution margin = Average sales price – Variable costs
= $18 – ($4 + $8)
= $6
Fixed costs = $2,500 + $1,200 + $3000 + $1000 = $7,700
Number of widgets = Fixed costs/Unit contribution margin
= $7,700/$6
= 1283.33 ~ 1283 widgets
b. How many dollars in sales does this represent?
Answer:
Sales in dollars = 1283*$18 = $23,100
c. what is the contribution margin for each widget sold?
Answer:
Unit contribution margin = Average sales price – Variable costs
= $18 – ($4 + $8)
= $6
d. If the goal is to make $100,000 profit per month, how many widgets must be sold?
