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 S17,162 per month and variable costs of S2.65 per unit produced. Each item is sold to retailers at a price that averages $2.68 (in whole number) a) The volume per month is required in order to break even- b) The profit or loss would be realized on a monthly volume of 61,000 units c) The volume is needed to obtain a profit of S16,000 per month- d) The volume is needed to provide revenue of $23,000 per month - (in whole number) (in whole number)

Explanation / Answer

Given Fixed cost = 17162

Variable cost = 2.65

Selling price = 2.68

a)

Breakeven point = Fixed cost / (Selling price – Variable cost)

Breakeven point = 17162/(2.68-2.65) = 572066.6

b)

Profit/Loss = (Selling –variable cost) Quantity – Fixed cost = (2.68-2.65)61000 – 17162 = -15332

Loss = -15332

c)

Profit = 16000

16000 = (2.68-2.65)Q – 17162

Q = 1105400

d) Revenue = Selling price*Quantity

23000 = 2.68*Q

Q = 8582

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