The Water Ski Equipment Company (WSEC) sells a small, relatively lightweight kneeboard. This kneeboard sells for \(\$ 350\). A recent cost analysis shows that the WSEC's cost structure for the coming year is as follows:

Required:
a Draw a graph that clearly shows (i) total fixed cost, (ii) total cost, (iii) total sales revenue and (iv) total contribution margin as the sales volume of exercise machines increases. Locate the break-even point on the graph.
b Calculate the break-even point in number of machines.
c How many machines must the WSEC sell to earn \(\$ 30000\) of profit per year?
d How much profit would be earned at a sales volume of \(\$ 420000\) ?
e Sally Morgan, the owner of the WSEC, is considering travelling a circuit of water ski schools around Australia each year to demonstrate the kneeboard, distribute information and obtain sales contracts. She estimates that this will cost about \(\$ 6000\) per year. How many additional kneeboards must the business sell per year to cover the cost of this effort?

Transcribed Image Text:

Variable cost per unit Total annual fixed costs $ 162.50 125 000