Petsmart is thinking of developing a new line of goods made especially for people to hang out with their dogs and get a little exercise. The first product they want to market is a cat-shaped boomerang. They will introduce the "Cat-O-Rang" at a price of $59-. The cost of materials going into the piece are projected to be $12- for plastic and $6- for furry type material. They can assemble 10 an hour; they pay their assembly people an average of $20 per hour. All the overhead is fixed, which totals about $800,000 that they can identify specifically as additional cost for this project. They will have to have some inspection, certification, and other annual fees totaling $101,000. They will also have a $5- commission they have negotiated with an internet site for handling promotion and sales
1) What is the breakeven level of sales in units and dollars for the project?
2) What will their income (or loss) be on the project if they sell 20,000 Cat-O-Rangs in the first year?
3) How much would they have to reduce variable cost per unit in order to breakeven at 20,000 units sold?
4) What is the margin of safety when 50,000 Cat-O-Rangs are sold?
5) How many do they have to sell to make $$1,000,000.