A company is making a product. each product is sold for $250. the fixed costs to
ID: 1210671 • Letter: A
Question
A company is making a product. each product is sold for $250. the fixed costs to produce each product consist of $100,000 in equipment cost and $75,000 in labor costs. Each product costs $85 per unit. Find the following. A. give the eq for total revenue for x units per year. B. give the eq for total costs for x units per year. C. what is the "breakeven" level of x? D. If you sell 1500 units this year, will you have a profit or loss? E. At 1500 units, what are your marginal and average costs? I'm stumped. Please help me.
Explanation / Answer
(A)
Total revenue (TR) = Price per unit x Quantity = $250.x
(B)
Total cost (TC) = Fixed cost + Total variable cost
= $100,000 + $75,000 + $85.x = $175,000 + $85.x
(C)
Breakeven quantity = Fixed cost / (Unit selling price - Unit variable costs)
= $175,000 / $(250 - 85) = $175,000 / $165 = 1,060.61 units
(D) x = 1,500
TR = $250 x 1,500 = $375,000
TC = $175,000 + ($85 x 1,500) = $(175,000 + 127,500) = $302,500
Profit = TR - TC = $(375,000 - 302,500) = $72,500
(E)
Marginal cost = Unit variable cost = $85
Average cost = Total cost / Number of units = $302,500 / 1,500 = $201.67
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