.A manufacturing firm is considering three alternatives for producing a new prod
ID: 462826 • Letter: #
Question
.A manufacturing firm is considering three alternatives for producing a new product. The revenue is $10 per unit. Alternative A has a monthly fixed cost of $1,300 and a variable cost of $7 per unit. Alternative B has a monthly fixed cost of $2,300 and the variable cost is $5 per unit. Alternative C has a monthly fixed cost of $6,300 and the variable cost is $2 per unit.
a) What output level produces an annual profit of $90,000 with alternative C?
b) Determine the range of output over which alternative A is profitable.
c) Determine the range of output over which alternative A is best and is profitable.
Explanation / Answer
a)Particulars:::::::::::::::::::::::::Amount
Annual profit ::::::::::::::::::::::: $90,000
ADD:
Fixed cost ::::::::::::::::::::::::::: $6,300
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::::::::::::::::::::::::::::::::::::::::::::$96,300
ADD
Variable Cost:::::::::::::::::::::::$24,075((12037.50 units *$2=$24075)
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Sales Revenue::::::::::::::::::$120375(12037.50 units *$10= 120375)
output level produces 12037.50 units
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b)Alternative A is profitable, at any type of level of outputs because its fixed value is too low compare than Alternative C, for example 1000 units *10=10,000 -7,000(1000 *7) variable cost=$3,000 - $1,300=$1,700(Profit) then for 12050 units * 10=120500-84,350 (12050*7)=$36,150-$1300=$34,850.
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c)IF Alternative A is profitable and it could be best means it production level of output more than 30,000 units then only it brings best profits.(more than $90,000)
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