Lincoln Company sells logs for an average of $18 per log. The company\'s preside

Question

Lincoln Company sells logs for an average of $18 per log. The company's president, Abraham, estimates that the variable manufacturing and selling costs total $6 per log. Logging operations require substantial investments in equipment, so fixed costs are quite high and total $108,000 per month. Abraham is considering making an investment in a new piece of logging equipment that will increase monthly fixed costs by $12,000.

Assist Abraham by calculating the number of additional logs that must be sold to break even after investing in the new equipment.

___ additional logs

Explanation / Answer

Well the additional fixed costs for the problem are 12,000 each moth. The variable costs are 6 dollars per log.

Since each log sells for an average of 18 dollars a log we can set up an equation to find the value of logs that will lead to a break event point.

1. 18* l = 6l +12,000 where l is the number of logs.

2. We set the equation equal to 0 by moving the 18l to the other side and we get 0=-12l+12000.

3. Now we can solve for l to get 12l=12,000    which gives l=1000

Therefore to break even the company must sell a total of 1,000 additional logs per month.

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