Question
A small company produce high-tech bicycles for international race teams. The company's fixed cost is 12,000 per month, required to pay for rent, salaries, and
A small company produce high-tech bicycles for international race teams. The company's fixed cost is £12,000 per month, required to pay for rent, salaries, and utilities. Every bicycle produced costs the company £500 in materials and other expenses. The company can produce a maximum of 50 bicycles per month.
Refer to the same information and now assume that the company have an option to expand and be able to produce a maximum of 60 bicycles per month. To make this happen, the company would need to invest £72,000 six months before they can start utilizing the new capacity. Once they start utilizing their new capacity, the monthly fixed costs would go up by £2,000. At the same time, to ensue all the produced bicycles can be sold, the company would need to reduce the selling price to £800 per bicycle.
Assuming the cost of producing a bicycle (£500) and the capacity utilization (80%) is the same before and after the increase in capacity, do the necessary calculations to find out how long would it take the company to recover £72,000, counting from the moment the money is invested?
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