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Breakeven and Target Profit

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Myers Implements is attempting to develop and market a new garden tractor. Fixed costs to develop and produce the new tractor are estimated to be $10,000,000 per year. The variable cost to make each tractor has been estimated at $1,800.00. The marketing research department has recommended a price of $4,000.00 per tractor.

(a) What is the breakeven level of output for the new tractor?

(b) If management expects to generate a target profit of $1,500,000 from the tractor each year, how many tractors must be sold?

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Solution Summary

The solution explains how to calculate the breakeven units and the units needed to generate a target profit.

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(a) What is the breakeven level of output for the new tractor?

Breakeven level is when the total revenue = total cost. This is calculated as
Breakeven units = Fixed Costs/Contribution Margin per unit
This is because at breakeven units - ...

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