Problem 1 White Appliances has the following cost and revenue estimates for its

Question

Problem 1 White Appliances has the following cost and revenue estimates for its new refrigerator model: Fixed cost- $2.58 million per year Cost per unit-$395 Revenue per unit-$550 a) Write the total cost relation. b) Determine the annual quantity needed to breakeven c) Estimate the profit at 30% above breakeven 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 find the minimum allowed difference between revenue and cost, and determine if the stated amounts will generate this level of profit

Explanation / Answer

(Problem 1)

(a) Total cost = Fixed cost + Variable cost = $2.58 million + $395 x Quantity

(b) Break-even quantity = Fixed costs / (Revenue per unit - Cost per unit)

= $2.58 million / $(550 - 395) = $2,580,000/$155 = 16,645 units (Considering integer value for quantity)

(c) At 30% above break-even, Quantity = 16,645 x 1.3 = 21,638 (Considering integer value for quantity)

Profit = Quantity x (Unit Revenue - Unit cost) - Fixed cost

= 21,638 x $(550 - 395) - $2,580,000 = (21,638 x $155) - $2,580,000 = $(3,353,890 - 2,580,000)

= $773,890

NOTE: As per Answering Policy, 1st question has been answered.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.