total fixed costs: 800,000

gross margin: 2,400,000

Pina Colada incurs exactly the same total fixed costs but produces and sells only 1,600,000 notebooks this coming year, what happens to the fixed cost per unit? In turn what would the total cost per unit be? If the average selling price stays at $1.90 how much gross margin would be earned?

The salespeople at Pina Colada, a notebook manufacturer, commonly pressured operations managers to keep costs down so the company could give bigger discounts to large customers. Joseph, the operations supervisor, leaked the $0.70 total unit cost to salespeople, who were thrilled, since that was slightly lower than the previous year's unit cost. Budgets were not yet finalized for the upcoming year, so it was unclear what the target unit cost would be. Joseph knew the current year's operating capacity was two million notebooks, and Pina Colada produced and sold just that many. The detailed breakdown of the $0.70 total unit cost is as follows