QUESTION 4 A producer of pottery is considering the addition of a new plant to a

Question

QUESTION 4 A producer of pottery is considering the addition of a new plant to absorb the backlog of demand that now exists. The primary location being considered will have fixed costs of $15,162 per month and variable costs of $2.93 per unit produced. Each item is sold to retailers at a price that averages $2.95 a) The volume per month is required in order to break even - (in whole number) on a monthly volumeo c) The volume is needed to obtain a profit of $16,000 per month - d) The volume is needed to provide revenue of $23,000 per month- (in whole number) (in whole number)

Explanation / Answer

In the question, following data is given:-

FC=$15162

VC=$2.93

R=$2.95

Answer :- The volume per month for break even = FC/(R-VC) =15162/(2.95-2.93) =758100 units

Answer:- Profit or loss:-

Profit =R*Q- (FC+VC*) =2.95*61000 – (15162+ 2.93*61000) =   179950-193892 =-$13942

Loss =$13942

Answer:- Volume required =(Profit +FC)/(R-VC)   = (23000+15162) / (2.95-2.93) = 1908100 units

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