Answer to Question #282337 in Economics for Abi

Question

A company has the capacity that can be used to produce a steel cup-board which it has been buying for Rs. 2000 each. If the company makes the steel cup-boards, it will incur materials cost of Rs. 800 per unit, labour costs of Rs. 400 per unit, and variable overhead costs of Rs. 200 per unit. The annual fixed cost is Rs. 25,00,000. Demand over the next year is estimated at 8,000 units. Would it be profitable for the company to make the steel cup-boards?

Answer 1

If demand over the next year is estimated at 8,000 units, then the possible profit is:

$TP = 2,000×8,000 - (2,500,000 + (800 + 400 + 200)×8,000) = 2,300,000.$

So, it would be profitable for the company to make the steel cup-boards.