Question

Asked Mar 24, 2019

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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.

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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...

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