Given the following data for Albert\'s fabricating production area: Fixed costs
ID: 409245 • Letter: G
Question
Given the following data for Albert's fabricating production area: Fixed costs for one shift = $60,000 Unit variable cost = $7 Selling price = $12 Number of machines = 6 Number of working days in year = 340 Processing time per unit = 40 minutes What is the annual capacity with a single eight-hour shift? What is the capacity with two shifts? What is the break-even volume with a single-shift operation? What is the maximum revenue with a single shift? What is the break-even volume with a two-shift operation?Explanation / Answer
Given :
Fixed cost for one shift: $60,000
Unit Variable cost: $ 7
Selling Price: $12
Number of Machine: 6
Number of working days in a year: 340
Processing Time per unit: 40 minutes
(a) Annual Capacity with single eight hour shift:
Total number of machines = 6
Shift hours per day = 8 hours
Processing Time per unit: 40 minutes
So total factory capacity (in hours) for one day
Number of Machine* shift hour per day
= 6*8 hours = 48 hours
So, total factory capacity (in hours) for one year
=Total factory capacity in one day* Number of working days in a year / Processing time per unit
= 48 hours *340*60 /40= 24480 unit/shift
(as processing time is given in minutes, so to convert in hour it is multiplied by 60)
So Annual capacity with single eight hour shift is 24480 unit/shift
(b) Capacity with two shift:
Total number of machines = 6
Shift hours per day = 8 hours
So total factory capacity (in hours) for one day in two shifts
= 2*Number of Machine* shift hour per day
= 2*6*8 hours = 96 hours
So, total factory capacity (in hours) for one year in two shifts=
=Total factory capacity in one day in two shifts* Number of working days in a year
=96 hours *340*60 /40= 48960 unit/shift
So, Annual Capacity with two shift=48960 unit/shift.
(c) Break –even volume with single shift
Given:
Fixed cost for one shift=$ 60,000
Unit Variable cost: $ 7
Selling Price: $12
To calculate C (contribution per unit) = Selling price of one unit(SP) - Variable cost per unit (VC)
C=SP-VC
=$ 12-$7= $ 5
So, Break-even volume (BEV) = $ Fixed Cost FC/C ($ contribution per unit)
=$ 60,000/ $5= $12,000
So Break even volume with single shift=$12,000
(d) Maximum revenue with single shift
Maximum revenue with single shift = Annual capacity with single shift * Selling Price
24,480 * ($12) = $29,3760
(e)Break even volume with two shift operation
Given:
Fixed cost for one shift=$ 60,000s = 2*$60,000= $120,000
So Fixed cost for two shift
Unit Variable cost: $ 7
Selling Price: $12
To calculate C (contribution per unit) = Selling price of one unit(SP) - Variable cost per unit (VC)
C=SP-VC
=$ 12-$7= $ 5
So, Break-even volume (BEV) = $ Fixed Cost FC/C ($ contribution per unit)
=$ 120,000 / $5= $24,000
So Break even volume with single shift=$24,000
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