A producer of pottery is considering the addition of a new plant to absorb the b

Question

A producer of pottery is considering the addition of a new plant to absorb the backlog of demand that now exists. The primary location being considered will have fixed costs of $12, 480 per month and variable costs of $0.99 per unit produced Each item is sold to retailers at a price that averages $1.18 The volume per month is required in order to break even (in whole number) The profit or loss would be realized on a monthly volume of 61,000 units The volume is needed to obtain a profit of $16,000 per month (in whole number) The volume is needed to provide revenue of $23,000 per month (in whole number)

Explanation / Answer

A.

Volume per month required will be:

Q(BEP).R = FC + Q(BEP).VC

Q(BEP) = FC/(R - VC)

Q(BEP) = 12480/(1.18 - 0.99) = 65684.81 = 65685 units

B.

Profit or loss on 61000 units will be

Profit = R*Q - (FC + VC*Q)

Profit = 61000*1.18 - (12480 + 0.99*61000)

Profit = -890

Means loss = 890

C.

Profit = 16000 per month

16000 = 1.18*Q - (12480 + 0.99*Q)

Q = (16000 + 12480)/(1.18 - 0.99) = 149895 units

D.

Revenue = 23000

Total Revenue = Q*R = 23000

Q = 23000/1.18 = 19492 units

Let me know if you have any doubts.

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