Question

1. A firm is paying $15,000 in rent monthly, and the cost of transportation, raw materials, and labor is $130
per piece. If a single unit is sold for $550.
A) If the firm sells 8500 units monthly, determine the total cost, total revenue, and profit.
B) Determine the Break-even volume.

In the next period, the monthly sale is increased by 700 units and also the cost of transportation, raw
materials, and labor by $50 per piece. Determine the total cost, total revenue, and profit. Also, determine the
Break-even volume.
Explain the Management Science approach to problem-solving with a suitable figure.

Answer 1

A)

Sales = 8,500*550 = $4,675,000

Variable cost = 8,500*130 = $1,105,000

Contribution margin = $3,570,000

Fixed cost = 15,000

Profit = $3,555,000

Total cost = Variable cost + Fixed cost

= 1,105,000 + 15,000

= $1,120,000

Breakeven = Fixed cost/ contribution margin per unit

= 15,000/(550 - 130)

= 35.71 units

B)

Sales = 9,200*550 = $5,060,000

Variable cost = 9,200*180 = $1,656,000

Contribution margin = $3,404,000

Fixed cost = 15,000

Profit = $3,389,000

Total cost = Variable cost + Fixed cost

= 1,656,000 + 15,000

= $1,671,000

Breakeven = Fixed cost/ contribution margin per unit

= 15,000/(550 - 180)

= 40.54. units.