?It’s Five? O’Clock Somewhere, LLC manufactures beverage containers. The company

Question

?It’s Five? O’Clock Somewhere, LLC manufactures beverage containers. The company is anxious to produce and sell a new beverage container designed to keep beverages cool for up to 2 hours. The container will sell for? $3 each. Enough capacity exists in the? company’s plant to produce? 16,000 of the new containers each month. Variable costs to manufacture and sell one of the containers would be?$1.25, and fixed costs associated with the container would total? $14,400 per month.

The? company’s Marketing Department predicts that if demand for the new container exceeds the?16,000 containers that the company is able to produce in its current facility that additional manufacturing space can be rented from another company at a fixed cost of? $1,000 per month. Variable costs in the rented facility would total? $1.40 per? unit, due to somewhat less efficient operations than in the? company’s current facility.

How many of the new beverage containers must be sold each month to make a monthly profit of

?$20,000??

A.

19,658

B.

?16,000

C.

22,125

D.

13,125

E.

20,625

Explanation / Answer

Solution: 20,625

Working:

20,000=3X-[15400+(16,000*1.25)+ 1.40(X-16000)]

20,000 = 3X - (15,400 + 20,000 + 1.40X - 22,400)

20,000 = 3X - (13,000 + 1.40X)

33,000 = 1.6X

X= 20,625

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