A company has been making surfboards for many years. The monthly overhead is $48,200 and each surfboard costs $221 in materials and labor to make. If these items are sold for $261 (a) What is the profit in dollars if 216 surfboards are made and sold? (Enter value but omit dollar sign.) Answer: (b) How many surfboards must be sold to break even? Answer: Note: Coursepack page 83, EX 8.6

a. There is a monthly loss of 49505 if 216 units are sold per month.

b. The break even in units is 1205 units.

Explanation:

a.

Profit is a function of Revenue less total costs. The revenue is calculated by multiplying the selling price by the quantity sold.

The revenue at 216 units is = 216 * 261 = 56376

The total cost at 216 units = 48200 + 221 * 261 = 105881

The profit/loss at 216 units = 56376 - 105881 = - 49505

Thus, there is a loss of 49505 at production and sale of 216 units.

b.

The break even in units can be calculated by dividing the Foxed costs/overheads by the contribution margin per unit.

The contribution margin per unit = Selling price per unit - variable cost per unit

Break even in units = Fixed cost or Overheads / Contribution margin per unit

The contribution margin = 261 - 221 = 40 per unit

Break even in units = 48200 / 40 = 1205 units per month

Profit - $ (39560)

Break-even units=1,205 units

Explanation:

The profit in dollar would be determined as follows:

Profit = total contribution - Fixed costs

Total contribution = sales revenue - variable cost

Total contribution = ($261 * 216) - (221 * 216)

= $8,640

Profit = 8, 640 - 48200 = $ (39560)

Break-even units

The number of units to be sold to break even will be determined as follows:

Units to break-even = Fixed cost / (selling price - variable cost)

= 48,200 / (261-221)

=1,205 units