Question

A company leases a building for $100,000 per year for it manufacturing. In addition, the

machinery in the building is being paid for O&M cost $20,000 per year. Each unit of the product

produced costs $15 in labor and $10 in materials. The product can be sold for $40 per unit.

Determine

a)

How many units per year must be sold for the company to breakeven.

b)

The annual profit If 10,000 units per year are sold.

Answer 1

a) The breakeven quantity is:

$BEQ = \frac{100,000 + 20,000} {40 - (15 + 10)} = 8,000$

units.

b) If 10,000 units per year are sold, then the annual profit is:

$TP = 40×10,000 - (120,000 + 25×10,000) = 30,000.$