Reference no: EM132786443

Question - Karak Company produces Product (A) for only domestic distribution since year 2017. In 2019, a similar product to Karak Company has come onto the market by another competitor. Karak Company is keen to compete with the new competitor by increasing the production and sales of product (A) without any changes on the selling price, as the selling price is JOD 6 per unit in the market.

The maximum production capacity in Karak's factory is 32,000 units of Product (A) each month. The variable cost to manufacture one unit of the product would be JOD 2.5, and the traceable fixed costs of Product A is JOD 70,000 per month. The CEO of Karak Company is confident that the demand for Product (A) will exceed the 32,000 units that the company is able to produce. Therefore, he should think of producing additional quantities of the product through having extra space area. This extra space area can be rented by the company for JOD 2,000 per month. Moreover, the variable cost to manufacture one unit of the product will also increase by JOD 0.30 per unit.

The CEO of Karak Company has decided to rent the new space to produce additional quantities of product A but he could not determine the monthly needed quantities. Therefore, the CEO asked you to determine the monthly units Karak Company should sell to cover all fixed and variable costs for Product (A).