Andrew McGee Is an Entrepreneur Looking to Start a Business

Short Answer

Andrew McGee is an entrepreneur looking to start a business manufacturing picnic tables from a new plastic resin material made from recycled soda bottles. This new material is harder in consistency than wood, rustproof, and essentially indestructible, which would be an advantage for furniture left out in the elements on a year round basis. Andrew estimates that each table would use $15 in materials, and take two hours of labour to put together, for which he would charge a rate of $12 per hour. He also estimates that each table would use another $4.50 in miscellaneous materials and supplies such as screws, glue, nuts, bolts, and other shop items. To start the business, Andrew estimates that he would need to purchase $2,500 in equipment, and spend $1,500 in developing a sales brochure and website. Other costs related to running the business are estimated to be $1,000 per year for communications, $2,500 for vehicle expenses, insurance of $750 and $500 for employee benefits. In his market research, Andrew was able to find another firm making a similar product in the United States, who were selling the table for $75 retail. Andrew believed that he could easily get that for his tables, given the substantial product advantages his table provided. Based on this information, answer the following questions:
A) Based on a selling price of $75, what is Andrew's gross profit per unit?
B) What is Andrew's breakeven point in units, assuming all of his startup costs are expensed in the first year?