The total cost of production consists of fixed costs (such as overhead) plus var

Question

The total cost of production consists of fixed costs (such as overhead) plus variable costs (such as supplies). Revenue s the amount of money that is received due to sales. Suppose that the overhead is dollar 1000 and the variable cost for each unit of tile has determined that the overhead is dollar 200. Each unit of tile sells for dollar 240. Find the total cost in dollars. C(x) of producing x units of tile and the revenue in dollars, R (x). From the sale of x units of tile. The company will tile and the revenue in dollars. R (x), from the sale of x units of tile. The company will break even (no profit and no loss) as long as revenue just equals cost. The value of x (the number of items produced and sold) where C(x) = R(x) is called the break-even point. Find the break-even point and the cost and revenue at the break-even point. Suppose the variable cost is actually dollar 220 per unit, instead of dollar 200. How does this affect the break-even point? Is the manager better off in this case or not? Explain. Discuss with your classmates.

Explanation / Answer

ANSWER :-

Revenue = R(x) = 240x
Total cost = C(x) = 1000 + 200x

Break-even R(x) = C(x)

240x = 1000 + 200x

40x = 1000

x = 25

So the R(x) = 240 x = 240 (25) = 6000

Total cost C(x) = 1000 + 200(x)

                        = 1000 + 200(25)

                          =6000

If variable cost is 220 per unit instead of 200

Total cost = C(x) = 1000 + 220x

R(x) = 240x

R(x) = C(x)

240x = 1000 +220x

20x = 1000

x= 50

Break even is 50 units instead of 25 units if we use 220 instead of 200.

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