Question

II. Please read the scenario below and answer the following questions. Zinc Energy Resources Co., a new division of a major battery manufacturing company, recently patented a new battery that uses zinc-air technology. The unit costs for the zinc-air battery are: The battery housing is $8, materials are $6, and direct labor is $6 per unit. Retooling the existing factory facilities to manufacture the zinc-air batteries amounts to an additional $1 million in equipment costs. Annual fixed costs include sales, marketing, and advertising expenses of $1 million; general and administrative expenses of $1 million; and other fixed costs totaling $2 million. a. What is the total per-unit variable cost associated with the new battery? b. What are the total fixed costs for the new battery? c. If the price for the new battery was set at $35, what would the break-even point be?

Answer 1

Son Given that the data i The unit costs for the Zinc - air battery are For the battery housing = 85 for the materials $6 and for the direct labour = &6 per unit amounts The Zinc- air batteries to an additional Equipment Cost = $1 million and Annual fixed cost aduertising Expenses incluede sales, marketing $1 million General and administrative Expenses - smidion costs to taling $ 2 million other food a to find aasciated the with total the per unit new battery vanable cost will be cost =) varable are in with change the costs which vary proportionally Sales (or) Production volome. remains constant but total in proportion with sales cols i per unit cost uanable cost vary Production volone

So, from the given unit battery housing Unit direct material Unit direct labor data cost Cost cost = = $8 $6 $ 6 = $20 of battery is The unit variable Cost "520" ($e+ $6+ $6) for the the fined cost by Now To find out New bat = fixed cost are the costs which in total is respective of level of will remain Constant sales con production i per unit cest will vary when there is a change in Number of units produced (ors sold, a . fixed sales, marketing & advertising Expenses = $1,000,000 foxed general and admini strative Expenses a s other fixed cost = 2,000,000 $ 4,000,000

Note: Investment ů new Expipment an annual and it fined & a cost capital and so not Expenditure it is and not considered to c) If be the = price $35 for the new battery is set , then what will be the con point will be Even fined Expense, break ne Reakeven Sales Sales an an unity = Break Ever the unity Contribution margin per uni that we know Selling Price per unit $ 20.00 (from o less: vanable Costs per unit per unit 15.00 Contribution margin fixed Expenses $ 4,000,000 Breal Even Sales, in units = 266,666,666 4,000,00 15.00 Break Even Scales, in dollars = $ 5,3 33,3 33,320 .. 266,666, 666 Onits X $ 20.00 - $5,333,333,320