Question
In: Accounting
A manufacturer has a fixed cost of $120 million to produce x million of computer chips...
A manufacturer has a fixed cost of $120 million to produce x million of computer chips and estimates its variable cost as $160 for x million compute chips. The manufacturer sells each chip for 165% more than its average cost per chip.
a. What is the manufacturer's average cost per x million computer chip?
b. What is the manufacturer's price x million computer chips?
c. What is the manufacturer's break-even quantity?
Solutions
Expert Solution
Fixed cost = $120 Million
Variable cost = $160 for x million computer chips
Selling price = 165% more than its average cost per chip.
Total cost for x million compuetr chips= Fixed cost + Variable cost = $120+$160 = $280
Per chip cost = $280/x
Average cost per x million chip =$(280/x)*x= $280
Profit is assumed to be 165% as it is stated that Seller sells each chip for 165% more than it Avg Price.
So, Profit for X chips= 165% of 280 = $462
Selling price for X chips= Profit + Cost price = $462+ $280 = $742
SP for 1 chip = $742/X = P
Variable cost for 1 Chip = $160/X
Break even quantity when Sell price = cost price
break even Qty = Fixed cost /(P- Variable cost) = (120)/((742/x)-(160/x)) =0.206X million chips
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