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A firm has the capacity to produce 1,000,000 units of a product each

Q3.  A firm has the capacity to produce 1,000,000 units of a product each year. At present, it is operating at 70 percent of capacity. The firm’s annual revenue is $700,000. Annual fixed costs are $300,000, and the variable costs are $0.50 per unit. The following equations will be useful.



Profit = Revenue – Costs

Revenue = Price each * quantity

Costs = Fixed Cost + Variable Costs = Fixed Cost + (cost each * quantity)

At the break even point, Profit = 0


a.  What is the firm’s annual profit or loss?

b.  What is the price for each unit?

c.  At what volume of sales does the firm break even?

d.  What will be the profit or loss if the plant runs at 90 percent of capacity?



Q5.  The Bore and Stroke Engine Company manufacturer has collected data on the manufacture of engines last month as shown below. The costs are the total cost for the month. They now need to plan for future months.


a.  What is the cost per unit if 5,000 engines are produced?

b.  If Bore and Stroke can manufacture an additional 1,000 engines without adding new machinery and equipment or other fixed costs, what would be the total cost per unit if 6,000 motors are produced?



Q11.  To automate one of its production processes, the Milwaukee Corporation bought three flexible manufacturing cells at a price of $400,000 each. When they were delivered, Milwaukee paid freight charges of $20,000 and handling fees of $15,000. Site preparation for these cells cost $45,000. Six foreman, each earning $20 an hour, worked five 40 hour weeks to set up and test the manufacturing cells. Special wiring and other materials applicable to the new manufacturing cells cost $3,500. Determine the cost basis (amount to be capitalized) for these cells. (This amount will be used for depreciation purposes).

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