Reference no: EM132794104

Problem 1: PRIDE, Inc. recently acquired a factory which incurs fixed costs of $540,000 annually. The normal production capacity of the factory is set at 250,000 units of product XYZ per year at a variable cost of $9.00 per unit. Assuming that PRIDE, Inc. is able to sell of its production at $3.00 above variable cost, at what level should the company operate?

Choices:

Option 1: The company should produce at a level of 250,000 units a year in order to fully utilize the fixed costs

Option 2: The company should produce at a level of 125,000 units a year in order to minimize variable costs

Option 3: It would not matter, as the company would not be able to earn a profit even at full capacity

Option 4: The company can produce at any level because it can realize a profit of $3.00 per unit over variable cost