Background Smokey Stoves mass produces residential appliances, including a renowned line of natural gas stoves. Manpreet Singh, Smokeys VP of Marketing, sets prices for the companys stove line. Looking at a new stove with a suggested retail price of $559, Singh estimates elements of Smokeys fixed and variable costs to calculate the companys break-even point and profit. Pricing Basics Price (P), Total Revenue (TR), Total Cost (TC), Fixed Costs (FC), Variable Costs (VC), Unit Variable Costs (UVC), and Break-Even Point (BEP) How to calculate a break-even point? BEPQuantity = Fixed Costs . = FC . Price Unit Variable Cost P UVC What is the profit equation? Profit = Total Revenue Total Cost = (P Q) [FC + (UVC Q)]

If Smokey achieves a sales target of 5,000 units, what will its profit be at a retail price of (a) $559; and (b) $619?

Details: Quantity Sold (Q) = 5,000 units Fixed Costs (FC) = $42,000 (rent) + $5,500 (utilities) + $10,000 (depreciation) = $57,500 Unit Variable Costs (UVC) = $55/unit + (8 hours/unit $20/hour) = $55 (materials) + $160 (labour) = $215/unit a. Quantity = 5,000; retail Price = $559 b. Quantity = 5,000; retail Price = $619