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30 March, 03:41

The marketing manager of Griffin Corporation has determined that a market exists for a telephone with a sales price of $36 per unit. The production manager estimates the annual fixed costs of producing between 40,000 and 80,000 telephones would be $450,000. Required Assume that Griffin desires to earn a $150,000 profit from the phone sales. How much can Griffin afford to spend on variable cost per unit if production and sales equal 50,000 phones?

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  1. 30 March, 04:06
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    The $18 per unit can Griffin afford to spend on variable cost per unit if production and sales equal 50,000 phones.

    Explanation:

    Since the net income equals to

    Contribution - Fixed cost = Net income

    where,

    Contribution = Sales - variable cost

    So, by using the above equation, the following information is given below:

    Sales price = $36 per unit

    Fixed cost = $450,000

    Net income = $150,000

    Units = 50,000 phones

    By using above information, we can calculate the contribution

    Contribution = Fixed cost + Net income

    = $450,000 + $150,000

    = $600,000

    Since, variable cost is not given. So we assume variable cost per unit be X.

    So,

    Units = Contribution amount : (Sale Price - Variable cost per unit)

    50,000 phones = $600,000 : ($36 - X)

    ($36 - X) = $600,000 : 50,000 phones

    So X would be $18 per unit

    Means, the variable cost is $18 per unit.

    Hence, $18 per unit can Griffin afford to spend on variable cost per unit if production and sales equal 50,000 phones.
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