Carrier sells air conditioning units to distributors. Ahead of the upcoming summer, demand probability is 40,000 units (25%), 55,000 units (35%), 70,000 units (25%), and 80,000 units (15%).
Fixed cost of production = $500,000
Variable cost of production per unit = $1,200
unit selling price= $1500
value for unsold products = $900
Answer the following questions:
1. If the manufacturer is considering production quantities of 40,000 units or 80,000 units, assuming 90% of product will be sold and 10% will be salvaged, what is the profit per unit?
Answer:
For 40,000 units
Profit per unit = $287.50
For 80,000 units
Profit per unit = $293.75
Explanation:
Total Profit = (0.9 * Total Unit Produced * Per unit selling price) + (0.1 * Total Unit Produced * Per unit selling price) - ( Fixed cost + (Total unit produce* Variable cost per unit))
Total Profit = (0.9 * 40,000 * 1,500 ) + (0.1 * 40,000 * 1,500) - (500,000 + (40,000 * 1,200))
= 54,000,000 + 6,000,000 - 48,500,000 = $11,500,000
For 40,000 units
Total Profit = $11,500,000
Profit per unit = total profit/no. of units
= 11,500,00 / 40,000 = $287.50
For 80,000 units
Total Profit = (0.9 * 80,000 * 1,500 ) + (0.1 * 80,000 * 1,500) - (500,000 + (80,000 * 1,200))
= 108,000,000 + 12, 000,000 - 96,500,000
= 23,500,000
Total profit = $ 23,500,000
Profit per unit = 23,500,000 / 80,000
= $293.75
