Question

Information about a pickling company is given below. (Pickling: A plot to be built is the name given to the stripping of vegetative or soft soil on a land to be filled, and the soil on the ore in open mining enterprises.)

Variable Expenses Electricity Expenses: 100 TL/m3 Diesel and Oil Expenses: 500 TL/m3 Tire and Spare Parts Expenses: 400 TL/m3 Explosive Expenses: 300 TL/m3 Other Variable Expenses: 200 TL/m3 Fixed costs Depreciation, insurance and interest expenses: 1.5 billion TL/year Compulsory labour and personnel expenses: 0.5 billion TL/year Other Fixed Expenses: 0.5 billion TL/year Revenue: 5000 TL/m3 Production Capacity is 2000000 m3 /year a) Find the breakeven point as the production amount? b) Find the amount of pickling that the company needs to make in order to make a profit of 3 billion TL/year.

Answer 1

	Production Capacity (m3/year)	2000000
Revenue	(TL/m3)	5000
Variable Expenses
	Electricity Expenses (TL/m3)	100
	Oil Expenses (TL/m3)	500
	Spare Parts Expenses (TL/m3)	400
	Explosive Expenses (TL/m3)	300
	Other Variable Expenses (TL/m3)	200
	Total Variable Cost (TL/m3)	1500
Fixed costs
	Depreciation, insurance and interest expenses (TL/year)	1500000000
	Compulsory labour and personnel expenses (TL/year)	500000000
	Other Fixed Expenses (TL/year)	500000000
	Total Fixed Cost (TL/year)	2500000000

a) To find the Break-Even Point:

At Break-Even Point Total Expense = Total Revenue

Total Expense = Total Variable Costs + Total Fixed Costs

The Variable factors here are = Variable Costs and Revenue dependent on the Production amount/capacity.

Therefore Taking Production capacity be 'x', we get equation of Break-Even be:

5000x = 1500x + 2500000000

Solving the above equation we get 'x' be:

x(Production Capacity) = 714285.7143m³

So, if the Production Capacity is 714,285.7143m³ then the Break-Even can be achieved, where total revenue equals the total expenses.

b) Required Profit of 3Billion TL/year, the required Production capacity required is:

Profit = Total Revenue - Total Expenses

3000000000 = 5000x - (1500x + 2500000000)

x(Production Capacity) = 1,571,428.571m³

So, if the Production Capacity is 1,571,428.571m³ then the Profit of 3Billion TL/year can be achieved.