09: (15Marks) A valve manufacturing company incurs AED 30 manufacturing the valv
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Question
09: (15Marks) A valve manufacturing company incurs AED 30 manufacturing the valve is AED 4000. These costs are considered as the only relevant manufacturing costs. The selling price for each valve is AED 150. The manufacturing capacity at the plant is 175 valves. AED 80 per each valve in material cost and ) per each valve in labor cost. The cost of setting up the machine for A. Determine the break-even quantity of parts to be produced.(4 Marks) B. Determine the total income (revenue) from selling the break-even quantity of parts.(4 Marks) C. Determine the percentage of total capacity at the break-even point. (4Marks) D. Determine the net profit (or loss) if a batch of 1000 Valves is produced. (3 Marks) Space for Solution:Explanation / Answer
Unit variable cost (AED) = Material cost + Labor cost = 80 + 30 = 110
Fixed cost (AED) = Setup cost = 4000
(a) Break-even quantity = Fixed cost / (Unit price - Unit variable cost)
= 4000 / (150 - 110)
= 4000 / 40
= 100
(b) Revenue from break-even (AED) = Unit price x Break-even quantity
= 150 x 100
= 15000
(c) % of Total capacity = Break-even quantity / Total capacity
= 100 / 175
= 0.5714
= 57.14%
(d) Net profit (AED) = Quantity x (Unit price - Unit variable cost) - Fixed cost
= 1000 x (150 - 110) - 4000
= 1000 x 40 - 4000
= 40000 - 4000
= 36000
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