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 $10,152 per month and variable costs of $0.99 per unit produced. Each item is sold to retailers at a price that averages $2.05
a) The volume per month is required in order to break even = (in whole number) 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 $16,000 per month = (in whole number) d) The volume is needed to provide revenue of $23,000 per month = (in whole number) 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 $10,152 per month and variable costs of $0.99 per unit produced. Each item is sold to retailers at a price that averages $2.05
a) The volume per month is required in order to break even = (in whole number) 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 $16,000 per month = (in whole number) d) The volume is needed to provide revenue of $23,000 per month = (in whole number) 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 $10,152 per month and variable costs of $0.99 per unit produced. Each item is sold to retailers at a price that averages $2.05
a) The volume per month is required in order to break even = (in whole number) 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 $16,000 per month = (in whole number) d) The volume is needed to provide revenue of $23,000 per month = (in whole number)

Explanation / Answer

a) The volume per month is required in order to break even = 9578

= Fixed cost / (Price of one product - Variable cost)

= 10152 / (2.05 - 0.99)

= 9577.35 =~ 9578

b) The profit or loss would be realized on a monthly volume of 61,000 units = $54,508

Profit =R×Q– (FC + VC ×Q)

P61,000= $2.05(61,000) – [$10152 + $0.99(61,000)] = $54,508

c) The volume is needed to obtain a profit of $16,000 per month = 24672

= (Specified profit + FC) / (Price of one product - Variable cost)

= (16000 + 10152) / (2.05 - 0.99)

= 24672

d) The volume is needed to provide revenue of $23,000 per month = 11220

Total Revenue =R×Q, so

Q = Total Revenue / R

= 23000 / 2.05

Q = 11220

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