Reference no: EM13224906
1. The Automotive Supply Company has a small plant that produces speedometers exclusively. Its fixed costs are $30,000, and its variable costs ar $10 per unit. It can sell a speedometer for $25.
a. How many speedometers must the company sell to break even?
b. What is the break even revenue?
c. The Company sold 3,000 units last year. What was its profit?
d. Next years fixed cost are expected to rise to $37,500. What will be the breakeven quantity?
e. If the company will sell the number of units obtained in part d and wants to maintain the same profit as last year, what will the new price be?
2. Writers Pleasure Inc., produces gold plated pen and pencil sets. Its plant has a fixed annual cos of $50,000, and a variable unit cost of $20. It expects to sell 5,000 sets next year.
a. To just break even, how much will the company have to charge per set to obtain this profit?
b. Based on its plant investment, the company requires an annual profit of $30,000. How much will it have to charge per set to obtain this profit? (Quantity sold will be 5,000 sets)
c. If the company wants to earn a markup of 50% on its variable costs, how many sets will it have to sell at the price obtained in part b?
4. The ABC company sells widgets at $9 each; variable unit cost is $6, and fixed cost is $60,000 per year.
a. What is the breakeven quantity point?
b. How many units must the company sell per year to a achieve a profit of $15,000?
c. What will be the degree of operating leverage at the quantity sold in part a? part b?
d. What will be the degree of operating leverage if 30,000 units are sold per year?
4. Two companies, Perfect Lawn CO. and Ideal Grass Co. are competing in the manufacture and sale of lawn mowers. Perfect has a somewhat older plant and requires a variable cost of $150 per lawn mower; its fixed cost are $200,000 per year. Ideal's plant is more automated and thus has lower unit variable costs of $100; its fixed cost is $400,000. Because the two companies are close competitors, they both sell their product for $250/units
a. What is the breakeven quantity for each?
b. At which quantity would the 2 companies have equal profits?
c. At the quantity obtained in part b, what is each companies degree of operating leverage?
d. if sales of each company were to reach 4,500 units per year, which company would be more profitable? Why?
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: Two companies, Perfect Lawn CO. and Ideal Grass Co. are competing in the manufacture and sale of lawn mowers. Perfect has a somewhat older plant and requires a variable cost of $150 per lawn mower; its fixed cost are $200,000 per year.
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