Solve all three (3) questions. Show all steps and complete calculations. Each qu

Question

Solve all three (3) questions. Show all steps and complete calculations. Each question 1. mirates Fire Fighting equipment manufacturer is considering adding a new line to his business and introducing a range of fire doors. Once production starts, manufacturing costs will amount to AED 90 for labor and AED 150 for materials for each door. The operation and maintenance (fixed) costs will be AED 9,190,000 per year. The market will allow a selling price of AED 340 per door. The annual capacity of the plant is 200,000 doors. a. How many doors must be made to break even? b. What will be the profit/loss if only 100,000 units are made and sold? c. Determine the percentage of total capacity at the break-even point. d. If the manufacturer increases the selling price to AED 400 per door without any changes in the variable and fixed costs, how many doors must be made to break even?

Explanation / Answer

a) Let the number of doors be x. Then break-even takes place when:

Total Cost = Total Revenue

9,190,000 + (90 + 150)x = 340x

9,190,000 = 340x - 240x

100x = 9,190,000

x = 91900

Hence, 91,900 doors must be made and sold to break- even.

b) If only 100,000 doors are made ands sold:

Total revenue = 100,000 x 340 = 34,000,000 AED

Total Cost = 9,190,000 + 240(100,000) = 33,190,000 AED

Profits = TR - TC = 34,000,000 - 33,190,000 = 810,000 AED.

c) Percentage of total capacity at break-even point: (91,900 / 200,000) x 100 = 45.95%

d) Break- even when price is 400 AED:

9,190,000 + (90 + 150)x = 400x?

9,190,000 = 400x - 240x

160x = 9,190,000

x = 57438 doors is the break-even point when price is 400 AED.

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