Problem:
You are the owner of a new startup company which is going to sell sound systems. You have approached the local bank for funding and they want a statement showing your projected sales, expenses and profits for the first year:
Unit sales XXX
Price XXX
Variable cost/Unit XXX
Projected Income Statement
Sales (dollars) XXX
Manufacturing cost XXX
Gross margin XXX
Marketing cost XXX
Profit before tax XXX
The details of your business plan include the following:
The selling price of each sound system is $1,600.
It will cost $300 to manufacture each sound system plus there will be fixed costs of $80,000 per year.
Marketing costs are projected to be 10% of dollar sales plus $10,000 in fixed costs per year.
You initially estimate that you will sell 100 units in the first year.
1. Identify the decision variables, exogenous variables, performance measure and intermediate variables.
2. Define the relationships between the variables identified in part 1.
3. Calculate the break-even point.