It\'s Five O\'Clock Somewhere, LLC manufactures beverage containers. The company

Question

It's Five O'Clock Somewhere, LLC manufactures beverage containers. The company is anxious to produce and sell a new beverage container designed to keep beverages cool for up to 2 hours. The container will sell for $3 each. Enough capacity exists in the company's plant to produce 16,000 of the new containers each month. Variable costs to manufacture and sell one of the containers would be $1.25, and fixed costs associated with the container would total $14,400 per month. The company's Marketing Department predicts that if demand for the new container exceeds the 16,000 containers that the company is able to produce in its current facility that additional manufacturing space can be rented from another company at a fixed cost of $1,000 per month. Variable costs in the rented facility would total $1.40 per unit, due to somewhat less efficient operations than in the company's current facility. How many of the new beverage containers must be sold each month to make a monthly profit of $30,000? OA. 19,375 O B. 28,375 OC. 16,000 O D. 26,875 OE. 25,372

Explanation / Answer

Profit generated from 16000 containers at current facility = 16000*(3-1.25)-14400= $13600 Additional profit to be earned from rented facility= 30000-13600 = $16400 Containers to be sold at rented facility=(16400+1000)/(3-1.4)= 10875 Total containers to be sold = 16000+10875 = 26875 Option D is correct

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