Farris Billiard Supply sells all types of billiard equipment, and is considering

Question

Farris Billiard Supply sells all types of billiard equipment, and is considering manufacturing their own brand of pool cues. Mysti Farris, the production manager, is currently investigating the production of a standard house pool cue that should be very popular. Upon analyzing the costs, Mysti determines that the materials and labor cost for each cue is $25, and the fixed cost that must be covered is $2,400 per week.

1.If Mysti sells 20 units at a price of $40 each, her total revenue will be _________.

2.If Mysti sells 20 cues, her total variable cost will be _________.

3. Break even point?

Explanation / Answer

1. Number of units sold = 20

Price per unit = $40

Total revenue = Number of units sold * Price per unit = 20 * $40 = $800

Total revenue = $800

2. Variable cost for each cue is $25.

Number of cues sold = 20

Variable cost of 20 cues = 20 * $25 = $500

Variable cost of 20 cues = $500

3. Break-even point is calculated by the formula:

BEP = Fixed Cost / (Selling Price per unit - Variable Cost per unit)

Fixed cost =$2400

Selling Price per unit = $40

Variable cost per unit = $500 / 20 = $25

BEP = $2400 / ($40 - $25)

BEP = $2400/ $15

BEP = 160units

Break even point will be reached when Farris Billiard will sell 160 units.

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