a)
To determine: The crossover point in units.
Introduction: The crossover point is the point at which revenue and expenses of the firm are equal. The company will experience neither loss nor profit at break-even point. Feasibility of the project can be determined using the crossover point.
a)
Answer to Problem 10P
The crossover point is 82,000 units.
Explanation of Solution
Given information:
Selling price = $2.50 / bag
High speed shredder:
Fixed cost = $85,000 / month
Variable cost = $1.25 / bag
Clunker:
Fixed cost = $44,000 / month
Variable cost = $1.75 / bag
Crossover point:
Formation of equation:
Let ‘x’ denote the number of units. The total cost is calculated by summing the fixed cost with the value obtained by multiplying the total variable cost with ‘x’.
High speed shredder:
Clunker:
Calculation of crossover point:
The crossover point is calculated by equating equation (1) with (2).
Equating (1) with (2):
Hence, the crossover point is 82,000 units.
b)
To determine: The monthly profit or loss for high speed shredder when selling 60,000 bags per month.
b)
Answer to Problem 10P
The monthly loss is $10,000.
Explanation of Solution
Given information:
Monthly sales = 60,000 bags
Selling price = $2.50 / bag
Calculation of total revenue:
Total revenue is calculated by multiplying the monthly sales with the selling price of the bag.
Calculation of total cost:
The total cost is calculated by adding the total fixed cost with the total variable costs for 60,000 bags.
Calculation of monthly profit or loss:
The profit or loss is calculated by subtracting the total revenue with the total costs.
Hence, the monthly loss is $10,000.
c)
To determine: The monthly profit or loss for Clunker when selling 60,000 bags per month.
c)
Answer to Problem 10P
The monthly profit is $1,000.
Explanation of Solution
Given information:
Monthly sales = 60,000 bags
Selling price = $2.50 / bag
Calculation of total revenue:
Total revenue is calculated by multiplying the monthly sales with the selling price of the bag.
Calculation of total cost:
The total cost is calculated by adding the total fixed cost with the total variable costs for 60,000 bags.
Calculation of monthly profit or loss:
The profit or loss is calculated by subtracting the total revenue with the total costs.
Hence, the monthly profit is $1,000.
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Chapter 7 Solutions
EBK PRINCIPLES OF OPERATIONS MANAGEMENT
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