Question

A factory manager is planning for the manufacture of plywood to be sold overseas. The fixed cost of operation is estimated at $800,000 per month while the variable cost is $155 per thousand board feet of plywood. The selling price will depend on how much will be produced and sold and is determined by the relationship, price per thousand board feet, p $600-0.05D, where D is the amount produced and sold in thousands of board feet Determine the range of profitable production For profitable production. production must be at least 1444 5 thousands of board feet per month nearest unit , but not more than 1785 23 (Round to the

Answer 1

The range of profitable production is calculated below by applying trial and error method.

"Fixed cost per month = $800,000 or FC = $800,000� Variable cost per thousand board feet of flywood = $155 or VC = $155� Selling Price per thousand board feet of flywood = P = $600 - 0.05D� No. of flywood's = D� Total revenue = > TR = P times D� Total cost = > TC = FC + VC� Profit = TR - TC �therefore To know the minimum units of flywoods to be produced, so that Fixed cost of $800,000 is coved at least we follow ""trial� and error""� Method� As a result, here I will try different numbers and \r\n calculate to see where exactly the profit = 0 or more� Trial 1: -� taking D = 2000 units (i.e no. of thousand board feet of flywood)�� p = $600 - 0.05 times D� = $600 - 0.05 times 2000� = $6000 - 100� = $500 per unit� TR = P times D� = 500 times 2000� = $ 1,000,000� VC or total variable "