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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 Preview

    (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 - ...

    Solution Summary

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