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A company which produces novelty items incurs the monthly costs in producing a particular novelty item
A company which produces novelty items incurs the monthly costs in producing a particular novelty item.
Fixed cost = ? 10,000 ,
variable cost = ?8 per item
If the company produces 400 units and sold them at?23 per unit( assume all the units are sold), how muchIs the:
a.Total cost?
b.Total revenue?
c.Total profit?
d.At what volume will it break-even?
e.Profit at a volume of ?700 units?
Expert Solution
a.
Total cost = Fixed cost + Variable cost
Variable cost = Variable cost per unit * Units
= ?8 * 400
= ?3,200
Total cost = ?10,000 + ?3,200
= ?13,200
b.
Total Revenue = Sales price per unit * Units
= ?23 * 400
= ?9,200
c.
Total profit = Total Revenue - Total cost
= ?9,200 - ?13,200
= ?4,000
d.
Break even point in units = Fixed cost / contribution margin per unit
Contribution margin per unit = Sales price - variable cost per unit
= ?23 - ?8
= ?15
Break even point in units = ?10,000 / ?15
= 667 units
e.
Profit at 700 units = Total revenue - Fixed cost - Variable cost
Total Revenue = 700 units * ?23
= ?16,100
Variable cost = 700 units * ?8
= ?5,600
Profit = ?16,100 - ?10,000 - ?5,600
= ?500
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