The Gatson manufacturing company has estimated the following components for a ne

Question

The Gatson manufacturing company has estimated the following components for a new product. Fixed cost = $50,000 Material cost per unit = $2.15 Labor cost per unit = $2.00 Revenue per unit = $7.50 Construct a spreadsheet model and then use use a two-way data table to show how the profit changes as a function of different production volumes and different values of material cost per unit. Vary the production volume from 0 to 100,000 in increments of 10,000. The five different material costs are $1.50, $1.95, $2.15, $2.85, and $3.25.

Explanation / Answer

R = revenue per unit = 7.50
FC = the fixed costs of production = 50,000
MC = material cost per unit = 2.15
LC = labor cost per unit = 2.00
P(q)= total profit for producing (and selling) q units
P(q) = (R) × (q) – FC – (MC)×(q) – (LC)×(q)

P(0) = 7.50*0 - 50000 - 2.15*0 - 2*0 = -50000

P(10000) = 7.50*10000 - 50000 - 2.15*10000 - 2*10000 = 8507.50

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