2. An auto parts manufacturing company incurs AED 80 per each auto part in mater
ID: 1117634 • Letter: 2
Question
2. An auto parts manufacturing company incurs AED 80 per each auto part in material cost and AED 25 per each auto part in labor cost. The cost of setting up the machine for manufacturing the auto part is AED 5000. These costs are considered as the only relevant manufacturing costs. The selling price per each auto part is AED 150 per each auto part. The capacity of the manufacturing capacity is 160 parts. a. Determine the break-even quantity of parts to be produced. en quantity of parts. c. Determine the percentage of total capacity at the break-even point. d. Determine the net profit (or loss) if a quantity of 100 is parts is produced.Explanation / Answer
Per unit cost = 80 + 25 = 105
Fixed cost = 5000
a.
Total cost, TC = 5000 + 105*Q
Total revenue, TR = 150*Q
Condition for break even : TC = TR
5000 + 105*Q = 150*Q
45*Q = 5000
Q = 111 (approx.)
b.
TR = 150*111 = AUD 16,650
c.
Capacity = 111*100/160 = 69.38%
d. Profit = TR – TC
= 150*Q – (5000 + 105*Q)
= 45*Q – 5000
= 45*100-5000
= - 500 (i.e. it’s a loss of AUD 500)
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