EDC Corporation Sells a Single Product for $25 Per Unit

question 136

Essay

EDC Corporation sells a single product for $25 per unit, with variable costs of $10 per unit. Annual fixed costs are $30,000.
a)Assuming fixed costs are spread evenly throughout the year, what is EDC's monthly breakeven point in units?
b)EDC currently sells 500 units per month. What is its annual profit?
c)If EDC increases its selling price by 20% and all other factors (including demand)remain constant, by what percentage will annual profits increase?
d)Assume the price remains at $25 per unit and variable costs remain at $10 per unit, but fixed costs increase by 30% annually. Calculate the percentage increase in unit sales required to achieve the same level of annual profit calculated in part (b).

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Definitions:

Marketability

The ease with which an asset or security can be sold or bought in the market without affecting its price.

Commercial Utility

The usefulness or value that a product or service provides in a commercial setting, often measured by its ability to meet the needs of a business or consumer market.

Enforceable

A term used to describe a legal agreement or obligation that can be upheld or compelled by law.

Negotiable Promissory Note

A financial instrument that guarantees the payment of a specified amount of money, either on demand or at a set time, and is transferable to other parties.