Q1) A well-known firm produces automobiles. The planning team needs to decide how many items to...

Q1) A well-known firm produces automobiles. The planning team needs to decide how many items to produce monthly. The monthly fixed cost is $42,000 and variable costs are $3 per charger. Items sell for $7 each.

a. Draw a table showing fixed costs, variable costs, total costs, total revenues, and total profits, for monthly volumes of 10,000, 12,000 and 15,000 units.

b. What is the break-even point?

c. Determine profit when volume equals 25,000 units.

Expert Solution

a.

b.Breakeven is when revenues = costs

Assuming ‘a’ number of units at breakeven

Revenue = 7*a

Costs = 42000+ 3*a

42000 + 3*a = 7*a
42000 = 4*a
a = 10500

Therefore breakeven is 10500 units

c. Profit when volume is 25000 units = Revenue – Costs

Revenue = 7*25000= 175000

Costs = 42000+ 3*25000 = 42000 +75000 = 117000

Profit = 175000 – 117000 = $58000

keosha answered 2 years ago

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