Question

In: Economics

An electrical product manufacturing company provides the following information related to plant revenue, cost, and capacity....

An electrical product manufacturing company provides the following information related to plant revenue, cost, and capacity. The purpose is to find the answers to the questions that are of primary interest to the company. The data is as follows:

Plant capacity 55,000 units

Total fixed cost $ 550,000

Unit Price $ 40

Variable cost $ 18

Tax rate 15%

Expected profit $ 85,000

Contribution margin $ 22

9. What would be the sale price of the product for which the plant would be at its break even point, if the fixed cost was $ 500,000, the variable cost was $ 50 and the maximum quantity to sell was 40,000?

10. Taking as a break even point the price of question 9, if the company wanted to obtain a profit of 30%, what would be the sale price of the product

Expert Solution

9)

Fixed Cost=F=500,000

Variable Cost per unit=V=$50

Maximum sales=Q=40000

Let the price be P

In case of breakeven

Tax liability=0

Variable Cost=TVC=V*Q=50*40000=$2000,000

Total Cost=TC=F+TVC+tax liability=500000+2000000+0=$2500000

Total Revenue=TR=P*Q=40000P

Set TR=TC

40000P=2500000

P=$62.50

Breakeven price will be $62.50

10)

Contribution margin per unit=Price-Variable Cost=P-50

Overall contribution margin=(P-50)*40000=40000P-2000000

Desired profit=30% of fixed costs=30%*500000=$150,000

Net profit=Overall contribution margin-Fixed cost=40000P-200000-50000=40000P-2500000

Set

40000P-2500000=150000

P=(150000+2500000)/40000=$66.25

Rahul Sunny answered 2 years ago

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