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Break Even Analysis

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I need assistance to answers this problem, how is the contribution calculated?

You have just bought a company that produces 3 x 5" specialty photo frames. Your frame has a retail price of $4.00. Retail margins on this product are 33% while wholesalers take a 12% margin. Variable manufacturing costs for the 3 x 5" frame are $.38 per unit. Fixed manufacturing costs are $500,000.
The advertising budget for this product is $1,000,000. Your salary and expenses are $50,000. Sales people are paid entirely by a 12% comission. Shipping costs,breakage and insurance are $.10 per unit.
1-What is the contribution for the 3 x 5" frame?
2-What is the product's break-even point?
3- Your ad agency has recommended increasing your advertising budget to $1,500,000. How many units will you have to sell to break-even if you follow their advice?

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You have just bought a company that produces 3 x 5" specialty photo frames. Your frame has a retail price of $4.00. Retail margins on this product are 33% while wholesalers take a 12% margin. Variable manufacturing costs for the 3 x 5" frame are $.38 per unit. Fixed manufacturing costs are ...

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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