Analyzing Cost Establishing the cost of the products and your profit will be very important. Your...

Analyzing Cost

Establishing the cost of the products and your profit will be very important. Your sales price and the amount of labor, clay and slip are in the following table.

Table 1: Prices and Contents

	Sales	Labor	Clay	Slip
	Price	Hours	Pounds	Ounces
Bowl	35	1	4	2
Mug	40	1.5	3	3
Plate	25	1	2.5	2

From the above table, the bowl sells for 35 dollars, and requires 1 hour of labor, 4 pounds of clay and 2 ounces of slip. The mug and plate data are also in the above table. In this model labor is a variable cost. To price the variable elements, the labor is ten dollars per hour, the clay is 80 cents per pound and the slip is 25 cents per ounce. The shop is on an incentive system and based on the number of units produced the employees’ salary will be increased to provide ten dollars for each bowl and plate produced and fifteen dollars for each mug produced. If the employee is extremely slow the base rate will be used; however, the shop has never had an employee that slow. The fixed cost per year is $48,000 for the shop. This cost includes rent, utilities, and insurance. Given the average price and variable cost per unit, what is the breakeven quantity per year, per week and per day of operation (assume a 6 day work week.)? To simplify this calculation use the average sale price and average cost of the units. Your breakeven number should be the total units (bowls, mugs and plates) sold.

Expert Solution

Calculations/ Formulas:

keosha answered 4 months ago

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