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 $15,400 per month and variable costs of $0.98 per unit produced. Each item is sold to retailers at a price that averages $1.23

a) The volume per month is required in order to break even = Blank 1 (in whole number)

b) The profit or loss would be realized on a monthly volume of 61,000 units = Blank 2

c) The volume is needed to obtain a profit of $16,000 per month = Blank 3 (in whole number)

d) The volume is needed to provide revenue of $23,000 per month = Blank 4 (in whole number)

Explanation / Answer

a. Break even volume = fixed costs/price per unit - variable costs per unit

15400/1.23 - 0.98 = 61,600 units.

b. if volume is 61,000 units, contribution margin will be 61,000 units * (price - variable cost)

= 61,000*(1.23-0.98) = $15,250. contribution margin - fixed costs = 15250 - 15400 = $(150) loss.

c. let the volume be x. contribution margin = x(1.23-0.98) = 0.25x

contribution margin - fixed costs = 0.25x - 15400 = 16,000

0.25x = 31400

or x = 125,600 units

d. let the volume be "x". contribution margin - fixed costs = 0.25x - 15400

0.25x - 15400 = 23000

0.25x = 38400

or x = 153,600 units

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