Question

In: Economics

A company has estimated fixed cost of $30,000 per month for 0 - 600,000 apples per...

A company has estimated fixed cost of $30,000 per month for 0 - 600,000 apples per month. The apples are sold in packs of 10 sold for $8 per pack. At 100% capacity the apples have a total variable cost of $30000 per month.

1) What is the yearly profit at the max capacity?

2) What is the break even production amount?

Solutions

Expert Solution

Fixed cost= $30000

At 100% of capacity, Quanitity= 600000

Total variable cost= $30000

Average variable cost per apple= 30000/600000= $0.05

When each pack has 8 apples, then with 100% quantity:

Number of packs per month= 600000/10= 60000

Each pack price= $8

1)

At 100 % capacity:

Number of packs per year= number of packs per month x 12= 60000 x 12= 720000

Total revenue= Number of packs per year x price of each pack= 720000 x $8= $5760000

Total cost= (Total fixed cost per month + Total variable cost per month) x 12= (30000+30000) x12= $720000

Yearly profit at maximum capacity= Total revenue - Total cost= $5760000-$720000= $5040000

2)

Break even arises where total revenue is equals to total cost.

Total revenue = Total cost

Let number of pack per year= A

So number of apple per year= 10A

Total revenue = Number of pack per year x price of each pack= A x 8= 8A

Total fixed per year= 30000 x 12= 120000

Total variable cost per year= Average variable cost per apple x number of apple per year= 0.05(10A)= 0.5A

Total cost = 120000+0.5A

For break even quantity:

Total revenue = total cost

8A= 120000+0.5A

8A-0.5A= 120000

7.5A= 120000

A= 120000/7.5= 16000 Packs year

Number of apples per year= 16000 x 10= 160000

16000 packs or 160000 apples per year is the break even quantity.

Rahul Sunny answered 1 year ago
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