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(a) Derive the theoretical break-even point relationship in terms of fixed costs, variable costs, and selling price. [3] You work for ABC manufacturing company that
(a) Derive the theoretical break-even point relationship in terms of fixed costs, variable costs, and selling price. [3] You work for ABC manufacturing company that supplies the industry with Wi-Fi routers. The company has an annual production capacity of 45,000 routers. Your production cost breakdown for 45,000 routers is shown in Table Q4 below. Table Q4: Cost breakdown for 45,000 routers An outside supplier has approached your company and offered to supply the Wi-Fi routers to your company for 27.5RMB each. Your manager has asked you to carry out an analysis of this offer. He advises you that the Fixed Overhead Costs for the production facilities will NOT be avoided if you purchase the routers from this outside supplier as your company has no other use for the vacant production facilities if you purchase from the outside supplier. (b) Draw a table comparing the cost of making the routers internally on a per router basis with the costs of purchasing the routers from the outside supplier. Do you recommend that your company purchases from the outside supplier? [5] (c) Your manager now tells you he can rent out the production facilities for 570,000 RMB per year. Given this new information, prepare a new cost table showing the impact of the facilities rental. Does this information change your recommendation whether to purchase from the outside supplier? [5] (d) Utilising the information provided in Table Q4, if your company can sell the Wi-Fi routers for 40.00RMB each, draw a table showing the production costs and sales revenue of manufacturing and selling router quantities from 10,000 30,000 routers in 5000 router increments. [5] (e) If the factory is running at full capacity of 45,000 routers per year with an assumed price of 40.00RMB per router, what is the profit made by the company? Also, calculate the safety margin for this scenario. [3] (f) Draw a Breakeven graph showing Total Cost (TC), Variable cost (VC), Fixed Cost (FC), and Revenue (REV) against production quantity (Q). Calculate the Breakeven Point and indicate this on the graph. [5] Standara inormail Propaninities
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