White machine shop fabricates polished steel casings. They currently sell 20,000
ID: 2415073 • Letter: W
Question
White machine shop fabricates polished steel casings. They currently sell 20,000 casings at a selling price of $45. They have the following cost structure:
Variable costs per unit
$30
Fixed costs
$150,000
Required (each requirement is independent):
What is the breakeven point in units?
Break-even point in units:
Suppose that if they decrease their price to $38, they could increase sales to 30,000 units. What would the new profit be if they decrease their price to $38?
Profit if price is $38:
What is the minimum price that White would be willing to charge in order to achieve an increase in sales to 30,000 units (round to the nearest cent)?
Minimum price for increase to 30,000 units:
Suppose that White can purchase a machine that would increase fixed costs to $300,000 and decrease unit variable costs to $20 per unit.At what level of production and sales would White be indifferent between the old machine and the new machine?
Level of production and sales (in units):
Variable costs per unit
$30
Fixed costs
$150,000
Explanation / Answer
ANSWER 1 UNITS UNIT PRICE 20000 45 900000 SALES 20000 30 600000 VARIABLE COST 300000 CONTRIBUTION 150000 FIXED COST 150000 PROFIT BEP IN UNITS FIXED COST/ CONTRIBUTION PER UNIT 10000 UNIT PRICE SALES 30000 38 1140000 VARIABLE COST 30000 30 900000 CONTRIBUTION 240000 FIXED COST 150000 PROFIT 90000 3 BREAK EVEN SALES = FIXED COST / CONTRIBUTION PER UNIT 30000 = 150000/CONTRIBUTION PER UNIT CONTRIBUTION PER UNIT 5 VARIABLE COST 30 MINIMUM PRICE TO ACHIEVE THE SALES LEVEL OF 30000 35 4 INDIFFERENCE POINT BETWEEN TWO MACHINES INDIFFERENCE POINT = DIFFERENCE IN FIXED COST/ DIFFERENCE IN CONTRIBUTION PER UNIT FIXED COS OF OLD MACHINE 150000 FIXED COST OF NEW MACHINE 300000 DIFFERENCE IN FIXED COST 150000 DIFFERENCE IN CONTRIBUTION PER UNIT 10 INDIFFERECE POINT = 15000
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