Cost Calculation
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Diamond Machine Technology makes a tool for sharpening the blades of pruning sheers and grass clippers. The company has invested $250,000 in developing this sharpener, which it would like to make back in the first year. This tool is about the size of a piece of chewing gum and costs $3 to make. Fixed costs for the sharpener are $10,000 per month. Diamond Machine's markup on sales is 30 percent.
Calculate: a.) its markup price; b.) contribution margin; c.) monthly breakeven volume; d.) year one breakeven volume with expected level of profit
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Solution Summary
This solution analyzes an investment in a manufacturing operation and calculates the markup price, contribution margin and breakeven volumes.
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The company has invested $250,000 in developing the sharpener which it wants to make back in the first year. Therefore the profit for the first year will be equal to $250,000. This will be used to calculate the number of units to be produced and sold.
The fixed costs are $10,000 per month which is equal to $120,000 per year.
The variable cost is $3 per unit.
Assume that the number of units to be made in the first year ...
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