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Define the term unit contribution

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Reference no: EM133170360

BREAK-EVEN CHARTS

The following data have been provided by the finance director of La Pitch which manufactures high-quality tents for the specialist outdoor market. The marketing director wants to reduce the price of the tents to $39.99 (he considers this to be a psychologically attractive price to consumers) to increase sales volume but there are concerns about reducing unit contribution and covering costs. There are also concerns about exceeding La Pitch's factory capacity.

  • direct labour per unit $17
  • direct materials per unit $18
  • fixed costs $200000
  • current selling price $45
  • maximum capacity of the factory is 30 000 units

1. Define the term 'unit contribution'.

2. On the basis of La Pitch's financial information, construct a fully labelled break-even chart. Calculate the break-even point, the margin of safety and profit from the sale of 25 000 tents.

Reference no: EM133170360

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