A manufacturer decides to introduce a new line of mini-microwave ovens. Fixed co

Question

A manufacturer decides to introduce a new line of mini-microwave ovens. Fixed costs are estimated at $8,400 per month, while the costs associated with producing each oven are expected to run $45 per unit. a) What will be the average cost per unit if they produce 100 units per month? How much will they have to charge if they want to make a profit of 20% on each unit? b) What will be the average cost per unit if they produce 500 units per month? How much will they have to charge if they want to make a profit of 25% on each unit?

Explanation / Answer

a)

TOtal cost of producing 100 units is

8400+45*100=8400+4500=12900

So average cost per unit is:129 dollars

Price per unit if 20% profit is needed is 129(1+20/100)=154.8 dollars per unit

b)

TOtal cost of producing 500 units is

8400+45*500=8400+22500=30900

So average cost per unit is:61.8 dollars

Price per unit if 25% profit is needed is 61.8(1+25/100)=77.25 dollars per unit

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