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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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Answer:

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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