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Last year Terrific Inc sold 1000 units of a product while operating at 80% of capacity....

Last year Terrific Inc sold 1000 units of a product while operating at 80% of capacity. The selling price per unit was $340 and variable cost was $190 per unit. Fixed costs were $150,000. (a) At what level of sales expressed in dollars does the firm achieve break-even? (b) What is the expected prorit in dollars if the firm operates at full capacity?

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Expert Solution

Given that last year sales are 1000 units @ 80% capacity

Selling Price = $340

Variable Cost Per Unit = $190

Fixed Cost = 150000

Contribution P.U = Selling Price - Variable Cost P.u

= $340 - $190

= $150

(a) Break Even is where there is no profit no loss

Break Even Point ( Units) =.   

=   

= 1000 Units

Break Even (Value) = Break Even Units * Selling Price

= 1000 * 340

= $340000

(b) Profit in dollars if the firm Operates at Full capacity

Given 80% capacity equals 1000 Units

then 100 % capacity equals.

= 1250 Units

Profit at 1250 units or 100% capacity is as Follows

Sales Value   1250*$340. = $425000

Variable Cost 1250*$190. = $237500

Conribution = Sales - Variable Cost

= $425000 - $237500

= $187500

Profit = Contribution - Fixed Cost

= $187500 - $150000

= $37500

jeff jeffy answered 1 year ago
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