Question

Eastern Utilities find that if they charge $0.7866 per CCF (cubic hundred feet), they will sell 1200 thousand CCF. If they charge $0.4601 per CCF, they will sell 1850 thousand CCF. Eastern Utilities also has data showing that their production costs are $675 thousand for 800 thousand CCF and $725 thousand for 925 thousand CCF. Show a profit/loss analysis including a graph for Eastern Utilities at these selling prices and production costs.

Answer 1

Computation of Fixed and Variable cost
Total Cost for 800,000 CCF	$6,75,000
Total Cost for 925,000 CCF	$7,25,000
Variable Cost	= 7,25,000 - 6,75,000
Variable cost for 125,000 CCF	= $50,000
Variable Cost per Unit	= 50,000/125,000
	$ 0.4 per CCF
Total Variable cost for 800,000CCF	= 800,000 X 0.4
	= $320,000
Fixed Cost	= Total Cost - Variable Cost
	= 675,000 - 320,000
	= $355,000
1) Calculation of Profit/ Loss in 1,200,000 CCF
Variable Cost	= 120,00,00 X 0.4
	= $480,000
Fixed Cost	= $355,000
Total Cost	= 480,000 + 355,000
	= 835,000
Selling Price	= $0.7866 CCF
Sales Value	=1,200,000 X 0.7866
	= $ 943,920
Profit /(Loss)	= 943, 920 - 835,000
	= $108,920
2) Calculation of Profit/Loss in 1,850,000 CCF
Variable Cost	= 1,850,000 X 0.4
	= $740,000
Fixed Cost	= $355,000
Total Cost	= 740,000 + 355,000
	= 1,095,000
Selling Price	= $.4601 CCF
Sales Value	= 1,850,000 X 0.4601
	= $851,185
Profit /(Loss)	= 851, 185 - 1,095,000
	= $(243,815)