C- V-P analysis

A manufacturing company is studying the feasibility of producing a new product. Market research indicates that a unit price of $110 would be competitive.

In the highest-cost scenario, fixed costs might be $22 400, production costs might be $50 per unit and selling and shipping costs might be $20 per unit.

Answer the first 5 questions based on the above information.

1. Write out the revenue function ______________________________________________

2. Write out the cost function ________________________________________________

3. Solve for the break-even volume and sales revenue algebraically using the revenue and cost functions. You must show your work.

For the next 2 questions, use the contribution margin/contribution ratio approach to solve. Show your work.

4. If the company wanted to earn $12,500 profit, how many units of the new product would it have to sell?

5. If the company was interested in earning $25,000 in sales revenue, how many units would it have to sell?

6. A company manufactures composters at a variable cost per unit of $43, and sells them at $70 each. The plant can produce at most 3 200 composters per month (its monthly capacity). Annual fixed costs are $648,000. Suppose the city is having a problem with rats, demand for composters falls and the company now operates at only 50% of capacity.

a. How much money is the company losing per year?

b. Since it is losing money, should the company immediately shut down and stop producing composters? Explain why or why not. Refer to the contribution margin to answer this question.