please help explain in details. Problem 2 At GSK Inc, the main product is Rock-g
ID: 1141320 • Letter: P
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please help explain in details.
Problem 2 At GSK Inc, the main product is Rock-graded Granitez, a natural looking pebble-matrix mix applied to swimming pool decks. It sells installed for $14.50 per square foot (sq ft). GSK can contract with several vendors for raw materials, which can cause the cost to vary from a high of $9.25 to a low of $7.50 per sq ft. Fixed costs average $2 million per year for the product. a) Determine the range of breakeven values as the cost varies from high to low. b) GSK's owner wants a $500,000 profit per year. If sales average 350,000 sq ft annually, stated amounts will generate this level of profit.Explanation / Answer
Answer in response to a)
The break even point is the point where Total Revenue equals Total cost.
Total Revenue is computed as the Sales price multiplied by
In this question, Sale price per unit = $ 14.50 per
Total Revenue = 14.50 * Quantity (Sq feet installed)
Total Cost is the sum of Total Fixed cost and Variable Cost
Here total fixed cost = $2 million per annum
Variable cost (Low) =$7.5 per sq.feet
Variable Cost (High) =$ 9.25 per sq feet
Let the quantity (sq feet installed) be denoted by Q.
Break even point is obatined when Total Revenue = Total Cost
In case of low variable cost, break even point is computed as follows:-
=> 14.5 Q = 2000000 + 7.5 Q
=> 7Q = 2000000
=> Q =285714
In case of high variable cost, break even point is computed as follows:-
=> 14.5 Q = 2000000 + 9.25 Q
=> 7Q = 2000000
=> Q = 380952
Thus, break even quantities range from 285714 to 380952 units.
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