A valve manufacturing company incurs o: ISMarks) A valve manufacturing AED 30 pe

Question

A valve manufacturing company incurs o: ISMarks) A valve manufacturing AED 30 per each valve in labor cost. The cost of setting manufacturing the valve s AED 4000. These costs are cons manufacturing costs. The selling for company incurs AED 80 per each valve in material cost and considered as the only relevant ng price for each valve is AED 150. The manufacturing up the machine capacity at the plant is 175 valves. A. Determine the break-even quantity of parts to be produ B. Determine the total income (revenue) from sellingt C. Determine the percentage of total capacity at the break-even point. ced.(4 Marks) income (revenue) from selling the break-even quantity of parts.(4 Marks) (4Marks) ne the net profit (or loss) if a batch of 1000 Valves is produced. (3 Marks) Space for Solution:

Explanation / Answer

Variable cost per unit (AED) = Material cost + Labor cost = 80 + 30 = 110

Fixed cost (AED) = Cost of set-up = 4000

(a) Break-even quantity in units = Fixed cost / (Selling price - Variable cost per unit)

= 4000 / (150 - 110)

= 4000 / 40

= 100

(b) Revenue from break-even units sold (AED) = Selling price x Break-even quantity in units

= 150 x 100

= 15000

(c) Percent of Total capacity = Break-even quantity in units / Total capacity in units

= 100 / 175

= 0.5714

= 57.14%

(d) Net profit (AED) = Quantity x (Selling price - Variable cost per unit) - Fixed cost

= 1000 x (150 - 110) - 4000

= 1000 x 40 - 4000

= 40000 - 4000

= 36000

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