Warner Clothing is considering the Introduction of a new baseball cap for sales by local vendors. The company has collected the following price and cost characteristics: Sales price $18 per unit

Variable costs 2 per unit

Fixed costs 52,000 per month

Required:

a. What number must Warner sell per month to break even?

b. What number must Warner sell per month to make an operating profit of $40,000?

(a) 3,250 units

(b) 5,750 units

Explanation:

(a) BEP (units):

= fixed cost : contribution margin per unit

= $52,000 : ($18 - $2)

= 3,250 units

Therefore, the 3,250 units must Warner sell per month to break even.

(b) BEP (units):

= (fixed cost + target profit) : contribution margin per unit

= ($52,000 + $40,000) : $16

= 5,750 units

Therefore, the units must Warner sell per month to make an operating profit of $40,000 is 5,750 units.