Propa 5000 buildi ou were able to purchase e Csivented that- tukes tho met oul f

Question

Propa 5000 buildi ou were able to purchase e Csivented that- tukes tho met oul for ScreuS ne ed putright ncleanos and mold them into ther proper Shho n Shape ,and takes the plasti for the lulolinq eadh year aré mun thet another fpallao vSu rad has per Siek a e aan to tho them into thair clach an assomdy Line is atte boS into boxes The fishecl pr odcs Snape, an and mo lds chane ichere osers put tha Scre foe thatoork unlike any thet have AYou purchase tthis machine Ot ave anchors 32 dryhall screus and -theirlast ,000.Th ears voith no resi a us Value,.The machia at youu he euos cihd anchors per year a dehave hired a chieoperating officer (Ccoo with deayee in Mechani ohol ll be paid t 50,000 etermine er yeat chch is the onl aten d used to make-the crevas and to box re64 ounces f meta tn ch box voill take 3a Ounces o plastic which roduce the 32 anchors is the onl ncterial used to make 'the arch The met you need is produced bmupe Suppliers and you've found One Sb farht oill allow you he plashc yo nerd is also produced b multipk Cwapers and you've found one so far that will ailóuw you to buy it at $.50 per pound. It takes 5 minutes for he workers on the assembly line

Explanation / Answer

Metal - Variable

Assembly labor - variable

Plastic - Variable

Property Taxes - Variable

Machine depreciation - Fixed

COO salary - Fixed

VP salary - Fixed

Direct material cost per box (32 screws and anchors in box) (1 pound = 16 ounces)

Screws = 64 ounces of metal required = 64 * 1.75 / 16 = $ 7

Anchor = 32 ounces of plastic = 32 * 0.5 / 16 = $ 1

Direct material cost per box = 7 + 1 = $ 8 per box

Direct labour cost per box = 5 mins per box = 12 * 5 / 60 = $ 1

Variable cost = 8 + 1 = $ 9 per box

Contribution margi8n = sale price - variable cost = 11 - 9 = $ 2 per box

Total fixed costs = salary of COO + salary of VP + depreciation

= 50,000 + 50,000 + 75,000/10 = $ 107,500

Break even point = Fixed costs / contribution per unit = 107,500 / 2 = 53,750 units

The current cost structure of company doesnot allow to make any profit as BEQ is 53,750 where as the capacity of machine is only 40,000 units per annum. The issue can be resolved either by controlling the costs or increasing the selling price and increasing the production capacity of the machine

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