Bob sells cookies only in packages of 5. It costs him $2.50 in materials per
package. Additionally, he has overhead
costs of $1,000 per month. In order to
pay himself a monthly salary of $4,000,
how many packages of cookies does
Bob need to sell per month at $5.00 per
package?
D
4

2000 units

Explanation:

We apply the contribution margin concept in solving this.

The selling price is $5

The $1000 overhead cost represents fixed costs.

The $2.50 material cost is the variable cost.

The salary of $4000 is like profits.

Bob has to sell x items to meet the break-even and attain $4000

Break-even = Fixed cost/ contribution margin per unit

fixed cost =$1000

contribution margin = Selling price - variable cost

=$5 -$ 2.50

=$2.50

break-even in units = $1000/2.50

=400 units

To achievea $ 4000 salary , Bob has to sell 400 units + $4000/2.50

=400 unit +1600 units

=2000 units

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