A piece of production equipment has a first cost of $100,000. The service lif is

Question

A piece of production equipment has a first cost of $100,000. The service lif is 6 years, the anticipated SV is $10,000, annual maintenance cost is $3000. The equipment will produce at the rate of 10 units per hour. Each unit is worth $2.00 in added revenue. One operator is needed full-time to operate the equipment. The operator will be paid $10/hr. No LOHR is applicable. Raw material cost 20 cents per/unit. ROR is 20% Determine the following: a). The BEP b). How many hours of operation will be required to produce the BEP c). How much profit or loss will be made if 50,000 units are produced

Explanation / Answer

BEP = FC/Price - Variable cost

Depriciation = (100000-10000)/6 = 15000

Annual cost = 3000

FC = 18000

VC = operator cost + raw materical per unit = 10.2

Price per unit = 10.2+2=12.2

BEP = 18000/(12.2-10.2) = 9000

2. If one hour produces 10 unit then 9000 units will be produced in 9000/10 = 900 hours

3. Operator cost for producing 50000 units is $50,000 + annual cost of $18000. sale price = 50000*12.2 = 610000

Total profit = 610000-78000 = 532000

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