Recilia: Lisa, Im in the process of setting up an incentive system for my sales staff, and Id like to get a better handle on our financial information.

Lisa: No problem. How can I help?

Recilia: Ive reviewed our financial results for the past 12 months. It looks like we made a profit in some months, and had losses in other months. From what I can tell, we sell each snowboard for $250, our variable cost is $150 per unit, and our fixed cost is $75 per unit. It seems to me that if we sell just one snowboard each month, we should still show a profit of $25, and any additional units sold should increase total profit.

Lisa: Your unit sales price of $250 and unit variable cost of $150 look accurate to me, but Im not sure about your unit fixed cost of $75. Fixed costs total $50,000 a month regardless of the number of units we produce. Trying to express fixed costs on a per unit basis can be misleading because it depends on the number of units being produced and sold, which changes each month. I can tell you that each snowboard produced and sold provides $100 toward covering fixed coststhat is, $250, the sales price of one snowboard, minus $150 in variable cost.

Recilia: The $75 per unit for fixed costs was my estimate based on last years sales, but I get your point. As you know, Id like to avoid having losses. Is it possible to determine how many units we have to sell each month to at least cover our expenses? Id also like to discuss what it will take to make a decent profit.

Lisa: We can certainly calculate how many units have to be sold to cover expenses, and Id be glad to discuss how many units must be sold to make a decent profit.

Recilia: Excellent! Lets meet again next week to go through this in detail.

Refer to the dialogue at Snowboard Company presented at the beginning of the chapter. What information is Recilia, vice president of sales, requesting from Lisa, the company accountant? How does Recilia plan on using this information?