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 $8,334 per month and variable costs of 38 cents per unit produced. Each item is sold to retailers at a price that averages 80 cents.

What volume per month is required in order to break even? (Round your answer to the nearest whole number.)

What profit would be realized on a monthly volume of 62,092 units? (Round your answer to the nearest dollar amount. Omit the "$" sign in your response.)

What profit would be realized on a monthly volume of 87,262 units? (Round your answer to the nearest dollar amount. Omit the "$" sign in your response.)

What volume is needed to obtain a profit of $14,784 per month? (Round your answer to the nearest whole number.)

What volume is needed to provide a revenue of $32,792 per month? (Round your answer to the nearest whole number.)

rev: 03_15_2012, 09_23_2013_QC_35148

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 $8,334 per month and variable costs of 38 cents per unit produced. Each item is sold to retailers at a price that averages 80 cents.

Explanation / Answer

(a) Volume per month is required in order to break even = Fixed Cost / (Selling Price - Variable Cost)

= 8334 / (0.80 - 0.38) = 19843

(b1) Profit would be realized on a monthly volume of 62,092 units = {(62,092 * 0.80) - (8334 + (0.38 * 62,092))} = $17,744.64 = $17,745

(b2) Profit would be realized on a monthly volume of 87,262 units = {(87262 * 0.80) - (8334 + (0.38 * 87262))} = $28,316.04 = $28,316

(c) Volume is needed to obtain a profit of $14,784 per month

let X be the volume then

0.80 X - (8334 + 0.38X) = 14784

0.42 X = 23118

X = 55042.8 = 55,043 Units

(d) Volume is needed to provide a revenue of $32,792 per month

let X be Volume

0.42 X = 32792 + 8334

0.42 X = 41126

X = 97919.04 = 97919 units

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