Thompson Company is considering the development of two products: no. 65 or no. 66. Manufacturing cost information follows.
No. 65 No. 66
Annual fixed costs $220,000 $340,000
Variable cost per unit 33 25
Regardless of which product is introduced, the anticipated selling price will be $50 and the company will pay a 10% sales commission on gross dollar sales. Thompson will not carry an inventory of these items.
At what unit-volume level will the profit/loss on product no. 65 equal the profit/loss on product no. 66?
The 10% sales commission is equal to 10% of $50 = $5 per unit.
Profit for #65 is (50 - 5) * x - 33 * x - 220,000 = 12 * x ...
This solution calculates at what unit-volume level the profit/loss for two products are equal.