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 $9,200 per month and variable costs of 70 cents per unit produced. Each item is sold to retailers at a price that averages 90 cents. a. What volume per month is required in order to break even? Volume per month units b-1. What profit would be realized on a monthly volume of 61,000 units? (Omit the "$" sign in your response.) Profit b-2. What profit would be realized on a monthly volume of 87,000 units? (Omit the "$" sign in your response.) Profit c. What volume is needed to obtain a profit of $16,000 per month? Volume per month units What volume is needed to provide a revenue of $23,000 per month? (Round your answer to the nearest whole number.) d. Volume per month units

Explanation / Answer

Given Data

Fixed cost =$9200

Variable cost/Unit = 70 Cents = 70/100 =$0.7

Selling price = 90 cents= $0.9

a) At breakeven we know profit =0

Profit = Sells revenue- Cost

= Sells cost * Units produced-(fixed cost+ Variablecost/unit* units produced)

Let, x is the required volume to be produced

0 = 0.9* x- (9200+ 0.7*x)=> 0.2x= 9200 => x= 46000 units

So, 46000 volume to be produced to breakeven

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b-1) Monthly Volume is 61000 units

so profit = Sales revenue- cost= 61000*0.9 - 9200-0.7*61000 = 3000

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b-2) Monthly volume = 87000

Profit = 87000*0.9-9200-0.7*87000 = 8200

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c) Required profit = $16000

Putiing in the same equation let x units required to make the said profit

So

16000= 0.9*x-9200-0.7*x => 0.2x= 25200 => x= 126000

So, it is needed to make a volume of 126000 units to make $16000 profit

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d) The question clearly asks a revenue of $23000 not the profit

It is simple as one unit gines a sells revenue of $0.9

So to make $23000 revenue we need = 23000/0.9 = 25555.55 nearly 25556 units

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