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I am unable to understand the question bellow –
the cost for design and development of a new product are expected to be $800000. The time from original product concept to market launch will be 8 months. The expected s.p. for the product is $8 p.u. and cost of sales will be $5. Expected sales per month in the period launch are :
Month sales units
1 40000
2 60000
3 80000
4 100000What is the breakeven time for this product?
A. 4 months B. 8 months
C.10 months D. 12 monthsSir, can you help me to solve the question as I can’t understand why the answer is ‘d’ that is 12 months?
In month 1 of the launch period the contribution is 40,000 x $3 = 120,000
In month 2 it is 60,000 x $3 = 180,000. So the total is now 300,000.
In month 3 it is 80,000 x $3 = 240,000, so the total is now 540,000.
In month 4 it is 100,000 x $3 = $300,000, so the total is now 840,000So it takes 4 months to breakeven (to get the 800,000).
BUT the launch period does not start for 8 months, so it is 4 months after the 8 months – i.e. a total of 12 months.
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