Question

Fajar Factory wants to build a rice processing factory that will take a year to build. $5 million is spent right away and another $5 million is spent next year. The company CEO is expecting that the factory will lose $1 million in its first year of operation and lose another half a million in its second year of operation. with that initial investment, the factory is expected to produce 8000 rice packs per month and sold fo $30 per unit for nest 20 years. meanwhile, the production cost for pack is $20.

Calculate the fajar factory profit for a year ? Show how you calculate TC,TR, PROFIT

Answer 1

Let's first calculate the total cost of production of factory and its operation.

It takes $5 million right away and another $5million next year. And the company is expected to lose $1million in its first year of operation plus another $1/2million in its next year of operation.

So total cost will be,

= 5 + 5 + 1 + 1/2

= $11.5million

We can consider this a fixed cost for setting up the factory.

Now let's calculate the cost of operation for the factory,

The factory will produce 8000 rice packets per month for next 20 years. And each rice packet production costs $20.

Monthly cost of production = 20×8000= $1,60,000

Yearly cost of production, since there are 12 months in a year.

= 12×1,60,000 = $1,920,000

So this is the cost of production for a year and since the factory is going to operate for 20 years the total cost of operation is going to be,

= 20×1,920,000

= $39,200,000

So the total cost of production for the factory for 20 years is $39,200,000

Total cost = fixed cost + total cost of production

Total cost = 11,500,000 + 39,200,000

Total cost = 50,700,000

Now let's calculate the total revenue for this factory.

Factory produces 8000 packs of rice per month and sells each pack at $30 each.

Monthly revenue for the company,

= 8000×30 = $240,000

Since there are 12 months in a year, annual revenue for the company,

= 12×240,000 = $2,880,000

The factory is going to produce rice packet for the next 20 years so the total revenue for the 20 years will be,

= 20×2,880,000

= $57,600,000

So the total revenue for the company in 20 years is, $57,600,000.

Now let's calculate the companies profit,

Profit = total revenue - total cost

Profit = 57,600,000 - 50,700,000

Profit = $6,900,000.

So we have calculated the total cost TC, total revenue TR and profit.

Total cost TC = $50,700,000

Total revenue TR = $57,600,000

Total profit = $6,900,000

And since we are asked to calculate profit for a year, we can divide total profit by total year to get profit for a year.

Profit for a year = 6,900,000/20

Profit for a year = $345,000.

So the profit for a year is equal to $345,000.