Question

A plastic cup manufacturer is considering adding a new plant to keep up with growth in demand. The location being considered will have fixed costs of $15,200 per monthand variable costs of $10 per box of 1,000 cups produced. Cups are sold for a price of $15 per box of 1,000.

a. What volume of cups is required per month to break even?

b. What profit would be earned on 6,000 boxes?

c. What volume is required to obtain a profit of $10,000 per month?

d. Plot the total cost and total revenue lines.

Answer 1

Break-even point (BEP) is the point at which sales revenue from goods sold is equal to the total cost incurred on the production of the goods.

Here,

R = Revenue per unit

v = variable cost per unit

Consider the following information:

(a)

Calculate the Break-even quantity, as shown below:

Thus, the 3,040 cups must be produced to break even.

(b)

Calculate the profit on 6,000 boxes, as shown below:

Therefore, the profit on selling 6,000 boxes will be .

(c)

Calculate the volume required to earn a profit of $10,000 per month, as shown below:

(d)

The total cost and revenue lines are as follows:

The break-even point exists where the red line intersects the green line.

Answer 2

This is a breakeven analvsis problem a) Fixed costs Breakeven volume- Selling price - Cost price $15,200 S15-S10 = 3.040 boxes b) Fixed cost - Quantity sold x (Selling Price- Variable cost) -15,200-6,000x (15-10) = 14.800 Profit earned Profit Fixed cost Quantity soldx (Selling Price- Variablecost) 15,200-10,000 S15-S10 Quantity sold- -1,040units Volume required is 1,040 units.

d) $40,000 $30,000 $20,000 $10,000 $0 500 1000 1500 2000 2500 $10,000 $20,000 Volume Revenue Cost P rofit