Question

4. Break-Even Analysis. Last year, a toy manufacturer introduced a new toy truck that was a huge success. The company invested $2.5 million for a plastic injection-molding machine (which can be sold for $2 million) and $100,000 in plastic injection molds specifically for the toy (not valuable to anyone else). Labor and the cost of materials necessary to make each truck are about $3.00. This year, a competitor has developed a similar toy that has significantly reduced demand for the toy truck. Now, the original manufacturer is deciding whether it should continue production of the toy truck. a. If the estimated demand is 100,000 trucks, what is the break-even price for the toy truck? b. Should the company shut down? Why or why not?

Answer 1

3) mit Break even price Total freed cost & Variable cost pa Production volume = $20,00,000+$3 100,000 - $23 * $20,00,000 cost is consider as releveut cost for which the equimal can be sold for). The rest sunk coss. b) If the company can tell the toy for $23 or above they should continue production, otherwise the they should shut down to stop losses.