Use the Goal Seek New Case Co. produces a variety of storage cases Suppose that

Question

Use the Goal Seek New Case Co. produces a variety of storage cases Suppose that the set up cost is S5,000. This is a fixed cost that is incurred regardless of the number of units eventually produced. In addition, suppose that variable labor and material costs are S7 for each unit produced. Also, assume that the selling price per unit is $12. Fixed Investment Variable Costs Selling Price Production Volume How many units have to be produced and sold to realize the profit of S7,000? Total Revenue Total Cost Total Profit

Explanation / Answer

Given Values:

Setup cost or Fixed cost = $5000

Labour and Material cost or Variable cost = $7 per unit

Selling price = $12 per unit

To be calculated:

Number of units of storage cases to be produced and sold to generate the profit of $7000

Solution:

Let the number of units of storage cases produced and sold = X units

Total Cost = Fixed Cost + (Variable cost per unit x Number of Units)

Total Cost = $5000 + $7 x (X) = 5000 + 7X

Total Revenue = Selling price per unit X Number of units sold

Total Revenue = $12 x (X) = 12X

Total Desired Profit = $7000

Using the Goal Seek method, Total Profit can be calculated as;

Total Profit = Total Revenue - Total Cost

7000 = 12X - (5000 + 7X)

Solving for X, we get;

Production Volume or X = 2400 units

With the given values of cost and revenue, units of storage cases required to generate a profit of $7000 is 2400 units

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