eBookProblem 19-02The management of a firm wants to introduce a new product. The product will sell for $5 a unit and can be produced by either of two scales of operation. In the first, total costs areTC = $3,000 + $3.1Q.In the second scale of operation, total costs areTC = $4,520 + $2.7Q.What is the break-even level of output for each scale of operation? Round your answers to the nearest whole number.The first scale of operation: unitsThe second scale of operation: unitsWhat will be the firm’s profits for each scale of operation if sales reach 3,800 units? Round your answers to the nearest dollar.The first scale of operation: $ The second scale of operation: $ One-half of the fixed costs are noncash (depreciation). All other expenses are for cash. If sales are 1,100 units, will cash receipts cover cash expenses for each scale of operation? Enter your answers as positive values. Round your answers to the nearest dollar.The first scale of operation generates a cash flow of $ .The second scale of operation generates a cash flow of $ .The anticipated levels of sales are the following: YearUnit Sales12,80023,80034,80045,800 If management selects the scale of production with higher fixed cost, what can it expect in years 1 and 2? Round your answers to the nearest dollar.Earnings in year 1: $ Earnings in year 2: $ If the firm selects the scale with higher fixed costs, its earnings in year 1 will be earnings in year 2.If sales reach only 3,800 a year, was the correct scale of operation chosen? Be sure to consider all the factors. should have been preferred.

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EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter16: Financial Planning And Control

Section: Chapter Questions

Problem 10PROB

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Problem 19-02

The management of a firm wants to introduce a new product. The product will sell for $5 a unit and can be produced by either of two scales of operation. In the first, total costs are

TC = $3,000 + $3.1Q.

In the second scale of operation, total costs are

TC = $4,520 + $2.7Q.

What is the break-even level of output for each scale of operation? Round your answers to the nearest whole number.
The first scale of operation: units

The second scale of operation: units
What will be the firm’s profits for each scale of operation if sales reach 3,800 units? Round your answers to the nearest dollar.
The first scale of operation: $

The second scale of operation: $
One-half of the fixed costs are noncash (depreciation). All other expenses are for cash. If sales are 1,100 units, will cash receipts cover cash expenses for each scale of operation? Enter your answers as positive values. Round your answers to the nearest dollar.
The first scale of operation generates a cash flow of $ .

The second scale of operation generates a cash flow of $ .
The anticipated levels of sales are the following:

Year Unit Sales

1 2,800

2 3,800

3 4,800

4 5,800

If management selects the scale of production with higher fixed cost, what can it expect in years 1 and 2? Round your answers to the nearest dollar.

Earnings in year 1: $

Earnings in year 2: $

If the firm selects the scale with higher fixed costs, its earnings in year 1 will be  earnings in year 2.

If sales reach only 3,800 a year, was the correct scale of operation chosen? Be sure to consider all the factors.

should have been preferred.

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