05) XYZ company manufacture of air filters for Aircraft systems; they have deter
ID: 2618846 • Letter: 0
Question
05) XYZ company manufacture of air filters for Aircraft systems; they have determined that the appropriate Selling price of each filter is S48. The factory fixed costs for production and marketing of air filters is $15 million. Bearing this in mind, please answer following questions: (20 Marks) 1. The product manager estimates that he can sell 800,000 air filters at a price of S48. What is the largest variable cost per filter that XYZ Company can pay and still achieve a profit of S1 million? (10 Marks) 2. Suppose the variable cost is S30 per air filter, what profit (or Loss) would XYZ can expect? (10 marks)Explanation / Answer
1) Maximum Variable cost that can be paid and still achieve a profit of $1 million
Sales = 800,000 * $48 = $38,400,000
Fixed Cost = $15,000,000
Profit = $ 1,000,000
Variable cost = 22,400,000
largest variable cost = $22,400,000 / 800,000 = $28
2)
Profit or Loss if variable cost = $30
Loss = 800,000 * ($48 - $30) - $15,000,000 = -600,000
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