Question

You are a banker and a young gentleman asks you if he can secure a loan to make ski racks. He has some basis expenses: Rent - $72,000/ year Production Labor - $36/unit Salary - $60,000/year Raw Materials - $36/unit Gas - $150/month Utilities - $200/month He will sell his ski rack for $90/unit. The owner indicates he can build and sell 600 units/month. Use Profitability and Break Even Analysis to help you make a decision on whether or not you would loan him money. Please provide a recommendation.

Answer 1

Calculation of Contribution Margin per unit $ 90 Sales Revenue per unit Less: Variable Cost per unit: Production Labor $36 Raw Materials $36 Total Variable Cost perunit CONTRIBUTION MARGIN PER UNIT $(72) $18. Calculation of fixed Cost per Month Rent ($72,000 112) Salary($60,000/12) Gas Utilities Total Fixed cost $ 6,000 $5,000 $ 150 $ 200 $ 11,350 per month . Break Even units Fixed Cost Contribution Margin per unit $ 11,350 $ 18 630.5556 units Number of units owner can build and sell 600 units, hence the company won't be able to cover the costs. As per me I wouldn't loan bim money

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