Problem
Trend Mobiles produces mobile phone covers. The fixed costs of operating the factory per month total $3,000.
Each mobile phone cover requires variable materials of $12 and variable labour costs of $36. The mobile phone covers are sold for $60 each.
They expect to sell 500 mobile phone covers a month.
Task
A. Calculate the contribution margin, showing all workings.
B. Calculate the break-even point in units, showing all workings.
C. Calculate the break-even point in dollars.
D. How much profit would Trend Mobiles make each month from selling 500 mobile phone covers? Show all workings.
E. Trend Mobiles are concerned that in the future, their fixed costs will increase as the landlord is indicating that the factory rent will increase from December 2022.
With all other costs and revenues remaining the same, analyse what impact that this will have on the contribution margin and break-even point. (Note: an explanation only is required but no calculations are required for this part).