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Assume a fixed cost of $900, a variable cost of $4.50, and ...

Sent to Finance Experts January 31 2006 at 4:10 AM
   

Assume a fixed cost of $900, a variable cost of $4.50, and a selling price of $5.50.
a.What is the break-even point?
b.How many units must be sold to make profit of $500.00?
c.How many units must be sold to average $0.25 profit per unit? $0.50 profit per unit? $1.50 profit per unit?

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Philadelphia, Pennsylvania

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January 31 2006 at 4:37 AM (26 minutes and 49 seconds later)
         

Hello!

I solved the first 2 requirements, but i couldn't figure out the third. Please advise the name of the book you are using as well as the chapter number so that i can check the book site for the formula

Regards,



Manal Elkhoshkhany
Manal -- Tutor -- 100% Positive Feedback on 135 Finance Accepts
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January 31 2006 at 7:38 AM (3 hours and 1 minute and 17 seconds later)
         
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Let's assume we sell x products. The profit function is y = (5.5 - 4.5)x - 900 = x - 900.

The break-even point is indeed x = 900. (Obvious)

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To make a $500 profit we must solve the following equation:

500 = x - 900 <=> x = 1400.

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To find how many units must be sold to average d dollars profit per unit we must solve the following equation

y/x = a <=> (x - 900)/x = a.

Let's solve the equation for x:


(x - 900)/x = a <=> x - 900 = ax <=> x - ax = 900 <=> x(1 - a) = 900 <=> x = 900/(1 - a).


Now we just plug in the following values a = 0.25, 0.5, 1.5

x = 900/(1 - 0.25) = 1200

x = 900/(1 - 0.5) = 1800

x = 900/(1 - 1.5) = -1800 (this means that we can't average a profit of of $1.5 per unit).


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January 31 2006 at 8:20 AM (41 minutes and 28 seconds later)
         
Reply to J's Post: Hello,
I am using Operations management for competitive advantage. Chapter6 11th edition
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