The Quiet Blow Company has a small plant that manufactures noise suppressors for

Question

The Quiet Blow Company has a small plant that manufactures noise suppressors for leaf blowers. Its annual fixed costs are $30,000, and its variable costs are $10 per unit. It can sell a suppressor for $25.

a. How many suppressors must the company sell to break even?

b. What is the break-even revenue?

c. The company sold 3,000 units last year. What was its profit?

d. Due to a new lump-sum tax, next year's fixed costs are expected to rise to $37,500. What will be the break-even quantity?

e. If the company will sell the number of units obtained in part (d) and wants to maintain the same profit as last year, what will its new price have to be?

Explanation / Answer

a) annual fixed costs are $30,000

variable costs are $10 per unit

Selling price =  $25.

Contribution = selling price - variable cost = $15

Break even point(output) = $30,000 / 15 = 2000 units

b) Break even revenue = priceXquantity = 2000X25 = $50,000

c) Profit = Revenue - cost

Profit = 25X3000 - [30,000+10X3000]

Profit = $15,000

d) Break even point(output) = 37,500/15 = 2500 units

e) profit = revenue - cost

15,000 = PX3000 - [37,500+10X3000]

Price should be $ 27.5

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