1. Determine the utilization and the efficiency for the following situation: (a)
ID: 395591 • Letter: 1
Question
1. Determine the utilization and the efficiency for the following situation:
(a) A loan processing operation that processes an average of 10 loans per day. The operation has a design capacity of 16 loans per day and an effective capacity of 12 loans per day.
Please solve the following problem related to cost-volume analysis
2. A producer of pens has fixed costs of $12,000 per month which are allocated to the operation and variable costs are $1.80 per pen.
(a) Find the break-even quantity if pens sell at $2.4 each.
(b) Find the profit if the company produces 25,000 pens and pens sell at $2.4 each?
3. A firm plans to begin production of a new small appliance. The manager must decide whether to purchase the motor for the appliance from a vendor at eight dollars each or to produce them in-house. The in-house process would have an annual fixed cost of $160,000 and a variable cost of six dollars per unit. Determine the range of annual volume for which each of the alternatives would be best.
Explanation / Answer
Answer 1:- Utilization =Actual output / design capacity =10/16=0.625=62.5%
Efficiency = Actual output/effective capacity =10/12=0.833 =83.33%
Answer 2:- Fixed cost = $12,000
Variable cost = $1.80 per pen
Selling price =$2.4
Break even quantity = FC/(Selling price – VC) =12000/(2.4-1.8) =20,000 units
Profit =Revenue*Volume –(FC+VC*Volume)
Profit =25000*2.4 – (12000+1.8*25000) =60000-57000
Profit = $3000
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