A producer of pottery is considering the addition of a new plant to absorb the b

Question

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)

b) The profit or loss would be realized on a monthly volume of 61,000 units =  

c) The volume is needed to obtain a profit of $16,000 per month =  (in whole number)

d) The volume is needed to provide revenue of $23,000 per month =  (in whole number)

Explanation / Answer

a) Fixed Cost = 15,162 Variable cost = $2.93/unit Selling price = $2.95/unit

Volume per month required to break even(selling price-fixed cost-variable cost = 0)

2.95x = 2.93x + 15162

0.02x = 15162

x = 758,100 units

b) In case x=61000

2.95*61000 - 2.93*61000 - 15162

= -$13,942

c) Profit = 16000

Therefore

2.95x - 2.93x - 15162 = 16000

0.02x = 31162

x = 1,558,100 units

d) Revenue = 23000

that is 2.95x = 23000

x = 7797 units

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