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Question

Complete the problems below. You must show your work to receive full credit.
Problem 1:
To manufacture a widget component requires an overhead (fixed) cost of $4000 and a variable unit cost of $5.50 per unit. What is the total cost and the average cost of producing a lot of 1500 widgets? If the selling price is $16 per unit, what is the break-even point? Explain what the break-even results means in terms of evaluating profit or loss.
Problem 2:
A manufacturing company is negotiating with a potential supplier for the purchase of 150,000 components. The manufacturer uses reverse pricing analysis to estimate the supplier’s variable costs are $7.00 per unit and that fixed costs, depreciation, overhead, etc., are $55,000. The supplier quotes a selling price at $12 per unit. Calculate the estimated average cost per unit. Do you think the supplier is asking too much for their parts? Could the purchasing department negotiate a better price? Explain your answer. Complete the problems below. You must show your work to receive full credit.
Problem 1:
To manufacture a widget component requires an overhead (fixed) cost of $4000 and a variable unit cost of $5.50 per unit. What is the total cost and the average cost of producing a lot of 1500 widgets? If the selling price is $16 per unit, what is the break-even point? Explain what the break-even results means in terms of evaluating profit or loss.
Problem 2:
A manufacturing company is negotiating with a potential supplier for the purchase of 150,000 components. The manufacturer uses reverse pricing analysis to estimate the supplier’s variable costs are $7.00 per unit and that fixed costs, depreciation, overhead, etc., are $55,000. The supplier quotes a selling price at $12 per unit. Calculate the estimated average cost per unit. Do you think the supplier is asking too much for their parts? Could the purchasing department negotiate a better price? Explain your answer. Complete the problems below. You must show your work to receive full credit.
Problem 1:
To manufacture a widget component requires an overhead (fixed) cost of $4000 and a variable unit cost of $5.50 per unit. What is the total cost and the average cost of producing a lot of 1500 widgets? If the selling price is $16 per unit, what is the break-even point? Explain what the break-even results means in terms of evaluating profit or loss.
Problem 2:
A manufacturing company is negotiating with a potential supplier for the purchase of 150,000 components. The manufacturer uses reverse pricing analysis to estimate the supplier’s variable costs are $7.00 per unit and that fixed costs, depreciation, overhead, etc., are $55,000. The supplier quotes a selling price at $12 per unit. Calculate the estimated average cost per unit. Do you think the supplier is asking too much for their parts? Could the purchasing department negotiate a better price? Explain your answer.

Explanation / Answer

Answering the first question as per Chegg policy

Problem 1: Given that,

Fixed cost = $4000, Variable unit cost = $5.50 per unit, Lot Size = 1500 widgets, Selling price = $16

A) Total cost = Fixed cost + (Variable cost x Lot size)

= 4000 + (5.50 x 1500) = $12250

B) Break Even point (BEP) is the point where Total cost equals total revenue.

Let BEP quantity lot size be P

16P = [4000 + (5.50P)]

10.50P = 4000

P = 380.95 Widgets

While evaluating profit or loss, the BEP result helps to decide whether the current production is obtaining a profit or loss. If the current production is less or more than BEP, it should be modified.

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