The manufacturer of a product that a variable cost of $2.50 per unit and total fixed cost of $125,000 wants to determine the level of output necessary to avoid losses.a. what level of sales is necessary to break, even if the product is sold for $4.25? what will be the manufacturer's profit or loss on the sales of 1000,00 units?b.If fixed costs rise to $175,000, what is the new level of sales necessary to break even?c.If variable cost decline to $2.25 per unit, what is the new level of sales necessary to break even?d. If fixed cost were to increase to $17,000, while variable cost declined to $2.25 per unit, what is the new break-even level of sales?e. If a major proportion of fixed costs were noncahs (depreciation), would failure to achieve the break-even level of sales imply that the firm cannot pay its current obligation as they come due? Suppose $100,000 of the above fixed cost $125,000 werre depreciation expense. what level of sales would be the cash break-even level of sales?please can you give each detail.

Question
Asked Mar 24, 2019
52 views

The manufacturer of a product that a variable cost of $2.50 per unit and total fixed cost of $125,000 wants to determine the level of output necessary to avoid losses.

a. what level of sales is necessary to break, even if the product is sold for $4.25? what will be the manufacturer's profit or loss on the sales of 1000,00 units?

b.If fixed costs rise to $175,000, what is the new level of sales necessary to break even?

c.If variable cost decline to $2.25 per unit, what is the new level of sales necessary to break even?

d. If fixed cost were to increase to $17,000, while variable cost declined to $2.25 per unit, what is the new break-even level of sales?

e. If a major proportion of fixed costs were noncahs (depreciation), would failure to achieve the break-even level of sales imply that the firm cannot pay its current obligation as they come due? Suppose $100,000 of the above fixed cost $125,000 werre depreciation expense. what level of sales would be the cash break-even level of sales?

please can you give each detail.

check_circle

Expert Answer

star
star
star
star
star
1 Rating
Step 1

The manufacturer of a product that a variable cost of $2.50 per unit and total fixed cost of $125,000 wants to determine the level of output necessary to avoid losses.

a. what level of sales is necessary to break, even if the product is sold for $4.25? what will be the manufacturer's profit or loss on the sales of 1000,00 units?

TR ($) = 4.25Q

TC($) = 125,000 + 2.5Q

Let Q* be the level of sales required to avoid losses, ie. to break even. Then at the break even point,

TR = TC

Or, 4.25Q* = 125,000 + 2.50Q*

Hence, Q* = 125,000 / (4.25 - 2.50) = 71,429 units

The manufacturer's profit or loss on the sales of 1000,00 units = TR - TC =  4.25Q - (125,000 + 2.50Q) = 4.25 x 100,000 - (125,000 + 2.50 x 100,000) = $ 50,000

Step 2

b.If fixed costs rise to $175,000, what is the new level of sales necessary to break even?

TC ($) now changes to: 175,000 + 2.50Q

If Q* is the break even sales volume then, at break even point

TR = TC

Or, 4.25Q* = 175,000 + 2.50Q*

Hence, Q* = 175,000 / (4.25 - 2.50) = 100,000 units.

Step 3

c.If variable cost decline to $2.25 per unit, what is the new level of sales necessary to break even?

TC($) = 125,000 + 2.25Q

Let Q* be the level of sales required to avoid losses, i...

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Finance

Cash flow

Related Finance Q&A

Find answers to questions asked by student like you

Show more Q&A add
question_answer

Q: HBM, Inc. has the following capital structure: Assets  $400,000                                     ...

A: a.Calculation of After-tax Cost of Debt:

question_answer

Q: The following problem refers to the stock table for ABC Inc.​ (a tire​ company) given below. Use the...

A: Hi, I’m answering the first 3 subparts of the question as the given question consists of multiple su...

question_answer

Q: Assume Technical Investors is thinking about three different size offerings for issuance of addition...

A: The percentage underwriting spread for each size offer is calculated as follows:Percentage underwrit...

question_answer

Q: NOTE: You already replied on this question with the answers as indicated below. Unfortunately, all a...

A: Part (a)All financials below are in $ mn.The net cash flow at time 0 if the old equipment is replace...

question_answer

Q: Ms. Cristiana Piccini is valuing an investment that pays her $27,000 per year for the first ten year...

A: Calculation of Value of Investment: Excel Spreadsheet:

question_answer

Q: Block, S., Hirt, G., & Danielsen, B. (2017). Foundations of Financial Management. New York, NY: ...

A: Note:Since we are entitled to answer up to 3 sub-parts, we shall answer the first 3 as you have not ...

question_answer

Q: Your client is currently 19 years old. Your client wishes to retire at age 71. Your client's expecte...

A: Two assumptions are required to be made because the question is silent about them:All cash flows i.e...

question_answer

Q: Block, S., Hirt, G., & Danielsen, B. (2017). Foundations of Financial Management. New York, NY: ...

A: Unit sales per month can be compared to production per month and the difference will give us the cha...

question_answer

Q: You borrowed $700 at 5% compounded quarterly. Yourpayments are $150 at the end of each year. How man...

A: We will adopt the following approach:It's a typical time value of money case, where we have to find ...