Suppose that a manufacturer has identified the following options for obtaining a

Question

Suppose that a manufacturer has identified the following options for obtaining a machined part. It can buy the part at $200 per unit (including materials); it can make the part on a numerically controlled semiautomatic lathe at $75 per unit (including materials); or it can make the part on a machine center at $15 per unit (including materials). There is negligible fixed cost if the item is purchased; a semiautomatic lathe costs $80,000; and a machining center costs $200,000.

The housing is sold at $300 per unit.

11. At Q=10,000 what is the total profit for the Make option using the semiautomatic lathe? ________

12. If the housing is sold by the manufacturer at $200 per unit instead of the original price of $300, how much is the PER UNIT contribution margin for the Make option using the semiautomatic lathe? _____

13. If the housing is sold by the manufacturer at $200 per unit instead of the original price of $300, what is the breakeven quantity for the Make option using the semiautomatic lathe? _____

Suppose that a manufacturer has identified the following options for obtaining a machined part. It can buy the part at $200 per unit (including materials); it can make the part on a numerically controlled semiautomatic lathe at $75 per unit (including materials); or it can make the part on a machine center at $15 per unit (including materials). There is negligible fixed cost if the item is purchased; a semiautomatic lathe costs $80,000; and a machining center costs $200,000.

The housing is sold at $300 per unit.

Explanation / Answer

11)Profit = contribution - fixed cost.

For make option using semiautomatic lathe the selling price is $300 and the variable cost is $75 and fixed cost is $80000.

Contribution = number of units *( Selling price -variable cost)

=10000*($300 - $75)

=$2250000

Profit = $22,50,000 -$80,000

=$21,70,000

12)Now sale price is $200. Variable costs is $75.

Contribution margin per unit = $200-75

=$125

13)Break even units = Fixed cost / Contribution margin per unit.

Fixed cost is $80000 and contribution margin computed above is $125.

Hence Break even units = 80000/125

=640 units.

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