Question

The fixed costs to manufacture hand-made ceramic planters are $21,000. The variable costs to manufacture 10 planters are $800. If the potter has to sell 700 units to break even, what is the selling price of the planters? If the potter wants to make a profit of $6,000 the first year, how many units must he sell? Be sure to show your work

Answer 1

Answer
Variable cost to manufacture 1 plant = 800 / 10 = 80
Let selling price be 'S'
Total revenue selling 700 units = 700S
Total cost selling 700 units = 700x80 + 21000 = 77000
At, Breakeven Total cost = Total revenue
700S=77000
S=110

Therefore selling price is 110 per unit

Let the number of pots for a profit of $6000 be P

Here
Total Revenue = 110 x P = 110P
Total Cost = 80 x P + 21000
We know profit = Total Revenue - Total Cost
or, 6000 = 110P - (80 x P + 21000)
or P = 900
He must sell 900 units

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