Answer to Question #108367 in Economics of Enterprise for moris

Question

Colin is the managerial accountant in charge of Company A, which
sells water bottles. He previously determined that the fixed costs of
Company A consist of property taxes, a lease, and executive salaries,
which add up to $100,000 per year. The variable cost associated with
producing one water bottle is $2 per unit. The water bottle is sold at a
premium price of $12.
a) Prepare B.E. chart. b) What volume per month is required in order to break even?
c) What profit would be realized on a monthly volume of 60,000
units?
d) What volume would be needed to obtain a profit of $ 20,000
per month?
e) What volume is required to provide revenue of $ 40,000 per
month?

Answer 1

a) A break even chart is a chart that shows the sales volume level at which total costs equal sales.

b) The volume per month that is required in order to break even is:

$Q = \frac{FC} {P - AVC} = \frac{100,000}{12-2} = 10,000$ units.

c) If Q = 60,000 units, then total profit is: $TP = P×Q - (FC + VC) = 12×60,000 - (100,000 + 2×60,000) = 500,000.$

d) To obtain a profit of $ 20,000 per month the quantity is:

$Q = \frac{TP + FC} {P - AVC} = \frac{20,000 + 100,000} {12 - 2} = 12,000$units12,000units.

e) The volume required to provide revenue of $ 40,000 per month is:

$Q = TR/P = 40,000/12 = 3,333 units.$