EKA manufacturing company produces part #2206 for the aerospace industry. Each u
ID: 2655507 • Letter: E
Question
EKA manufacturing company produces part #2206 for the aerospace industry. Each unit of part #2206 is sold for $15. The unit production cost of part #2206 is $3. The fixed monthly cost of operating the production facility is $3000.
1) If next months demand is 200, how much should the company charge to break even?
2) At the current price demand is 400. If they lower the price to $12, demand will increase to 500. Should they lower the price?
3) Based on the information above, the method to solve the model is known as
A) Decision Science
B) All are correct
C) Quantitative methods
D) Management Science
4) The product has 4 screws which cost $15 per box. Should these be included in the variable cost?
A) True
B) False
5) How many units need to be sold in a month to break even?
A) 200
B) 166.67
C) 183.83
D) 500
E) 250
6) What are total costs at the break even point?
A) 3750
B) 3000
C) 0
D) 750
E) 250
7)What are fixed costs at the break even point?
A) 3750
B) 750
C) 0
D) 250
E) 3000
8) If next months demand is 200, how much should fix costs be?
A) 2206
B) -600
C) 3600
D) 600
E) 2806
F) 3000
9) If next month’s demand is 200, how much should the company charge for each unit of part #2206 to make $5000?
A) 72
B) 18
C) 50
D) 39.03
E) 43
Explanation / Answer
Selling Price per Unit 15.00 Production cost per unit 3.00 Contribution per unit(SP-VC) 12.00 Fixed Costs 3,000.00 1) Contribution per unit = FC/No of units Contribution per unit = 3000/200 Contribution per unit = 15 SP = VC + Cont = 15+3 = 18 2) Particulars Demand is 400 Demand is 500 Selling Price per Unit 15.00 12.00 Production cost per unit 3.00 3.00 Contribution per unit(SP-VC) 12.00 9.00 Total Contribution(no of units*cont per unit) 4,800.00 4,500.00 Fixed Costs 3,000.00 3,000.00 Income 1,800.00 1,500.00 Company should not lower price as can be seen from above analysis 3) B) All are correct 4) A True 5) BEP = Fixed costs/Cont per unit = 3000/12 = 250 Units 6) Costs at break even point of 250 Units = 250*3+3000 = 3750 7) Fixed Costs remain same at all levels of output. Thus will be 3000 8) Fixed Costs remain same at all levels of output. Thus will be 3000 9) Fixed Costs 3,000.00 Profit desired 5,000.00 Total contribution desired(FC+Profit) 8,000.00 Demand 200.00 Contribution per unit desired(8000/200) 40.00 VC Per unit 3.00 Selling price per unit(40+3) 43.00
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