PLEASE SHOW WORK! 3. A firm produces three products in a repetitive process faci
ID: 359213 • Letter: P
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PLEASE SHOW WORK!
3. A firm produces three products in a repetitive process facility. Product A sells for S50; its variable costs are $25. Product B sells for $180; its variable costs are $70. Product C sells for $30; its variable costs are $20. The firm has annual fixed costs of $340,000. Last year, the firm sold 1200 units of A, 2500 units of B, and 12,000 units of C. (10 points) a) Calculate the break-even point of the firm. (5 points) b) The firm ha from $50 to $40, believing that its sales volume will rise from 1200 units to 2400 units What is the revised break-even point? (5 points)Explanation / Answer
a)
Product
Selling
Variable
V/P
1-V/P
Sales
Percent
Weighted
price P
cost V
of sales
contrib
A
$50
$25
0.500
0.500
1200x50=$60000
=60000/870000=0.0689
0.500x0.0689 =0.03445
B
$180
$70
0.389
0.611
2500x180=$450000
=450000/870000=0.5172
=0.611x0.5172 =0.3160
C
$30
$20
0.667
0.333
12000x30=$360000
=360000/870000=0.4137
=0.333x0.4137 =0.1378
Total
$870000
1.0000
0.48825
Break-even for this firm was $340,000 / 0.48825 = $696364.57
b)When the price of A is reduced, the revised calculations are:
Product
Selling
Variable
V/P
1-V/P
Sales
Percent
Weighted
price P
cost V
of sales
contrib
A
$40
$25
0.625
0.375
2400x40=$96000
=96000/906000=0.1059
0.375x 0.1059 =0.0397
B
$180
$70
0.389
0.611
2500x180=$450000
=450000/906000=0.4967
=0.611x0.4967 =0.3035
C
$30
$20
0.667
0.333
12000x30=$360000
=360000/906000=0.3974
=0.333x0.3974 =0.1323
Total
$906000
1.0000
0.4755
Break-even for this firm was $340,000 / 0.4755 = $715036.80
Product
Selling
Variable
V/P
1-V/P
Sales
Percent
Weighted
price P
cost V
of sales
contrib
A
$50
$25
0.500
0.500
1200x50=$60000
=60000/870000=0.0689
0.500x0.0689 =0.03445
B
$180
$70
0.389
0.611
2500x180=$450000
=450000/870000=0.5172
=0.611x0.5172 =0.3160
C
$30
$20
0.667
0.333
12000x30=$360000
=360000/870000=0.4137
=0.333x0.4137 =0.1378
Total
$870000
1.0000
0.48825
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