Question

Your costs if you make 2,800 parts are provided. You have the capacity to make an additional 2,800 parts for no additional increase in the fixed cost. Assuming you manufacture a total of 5,600 parts, what is the unit price you must charge if you desire a profit of $434,000? (Assume you will sell all 5,600 parts.)

Material (variable) : $158,000

Labor cost (variable) : $273,000

Administrative

variable : $76,000

fixed : $66,000

Overhead

variable : $111,000

fixed : $138,000

Answer 1

Cost Production of 2800 parts:

Material (variable) : $158,000

Labor cost (variable) : $273,000

Administrative

variable : $76,000

fixed : $66,000

Overhead

variable : $111,000

fixed : $138,000

Total: 822000

Cost of Producing another 2800 parts:

Material (variable) : $158,000

Labor cost (variable) : $273,000

Administrative

variable : $76,000

Overhead

variable : $111,000

Total : 618000

Fixed are not added for the next 2800 parts.

Grand Total cost = 822000 + 618000 = 1440000

Desired Profit = 434000

Hence Total Revenue should be = 1440000 + 434000 = 1874000

Per unit price = 1874000/5600 = 334.64