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Contribution Margin and Anticipated Profit

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Innovators Inc. produces two products, A and B, with the following characteristics:

Product A Product B
Selling price per unit $10 $15
Variable cost per unit $ 8 $10
Expected sales (units) 10,000 5,000

Total fixed costs for the company are $21,000.

A. What is the anticipated profit given the expected sales volume ?
B. Assuming the product mix would be the same at the break-even point, compute the break-even point (be sure to indicate the number of units of each product) .
C. If only product A was sold, how many units would be needed to break even ?
D. If only product B was sold, how many units would be needed to break even ?
E. If the product mix changed so that equal units of A and B were sold, what would be the new break-even point in total units?

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Solution Preview

A. Anticipated profit:

10,000 units * $2 per unit or $20,000 for A and 5000 units* $5 per unit or $25000 for product B, making a total of $45000 gross profit for both the product. The fixed cost is ...

Solution Summary

The expert examines contribution margin and anticipated profits.