Question

A manufacturer has a monthly fixed cost of $50,000 and a production cost of $7 for each unit produced. The product sells for $16 per unit. If the manufacturer produces and sells 3,000 units per month, indicate whether he will have a profit, loss or break-even.a. Profitb. Break-evenc. Lossd. None of the above.

Answer 1

Answer:

The manufacturer will have a c. Loss

Explanation:

The break-even point is the level of production at which the costs of production equal the revenues for a product and calculated by using following formula:

Break-even point in units = Fixed cost/(Selling price per unit-Variable cost per unit)  = $50,000/($16-$7) = $50,000/$9 = 5.556 units (rounding)

The manufacturer produces and sells 3,000 units per month < Break-even point in units. Therefore, the manufacturer will have a loss

Answer 2

Answer:

c. Loss

Explanation:

To break even, the total units sold would result in the total cost being equivalent to the total sales. As such, break even is the point where profit/loss is nil. Where sales is more than cost, the company makes a profit, otherwise a loss.

Given fixed cost = $50,000

Production cost per unit = $7 (variable)

Selling price per unit = $16

Units sold = 3,000

Profit/loss = sales - cost

= 16(3000) - (7(3000) +50,000)

= 48,000 - 71,000

= $23,000

This is negative as such as a loss.