brkeven.exam2 - output 4 After the increase in costs in 3...

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Sample Breakeven Problem for Exam 2. A firm has the following income statement For a month. Sales: 3,000 units at $80/unit $240,000 Less: Cost of Goods Sold. Variable Production Cost 180,000 Fixed Production Cost 19,800 Gross Margin 40,200 Selling and Administrative Expenses Variable Selling Cost 21,000 Fixed Selling Expenses 7,500 Net Income Before Taxes $ 11,700 1. Find the firm’s breakeven output. 2. If it wishes to have a monthly net income before taxes of $18,000 and its cost structure remains as above, what quantity of output will it need to sell? 3. If its variable production costs increase by $4 per unit, what will be its breakeven
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Unformatted text preview: output? 4. After the increase in costs in 3, what output will it need to sell if it wishes to have the $18,000 monthly pretax profit stated earlier? 5. Given the variable production cost increase but no change in fixed costs, what will be the firm’s monthly profit if it sells 4,000 units of output per month? ANSWERS. 1. Q b = TFC/(P – AVC) = 27,300/(80 – 67) = 27,300/13 = 2,100 2. Q = (27,300 + 18,000)/(80 – 67) = 3,485 3. Q b = TFC/(P – AVC) = 27,300/(80 – 71) = 27,300/9 = 3,033 4. Q = (27,300 + 18,000)/(80 – 71) = 5,033 5. Profit = Q(P – AVC) – TFC = 4,000(9) – 27,300 = $8,700...
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This note was uploaded on 04/06/2012 for the course ECO 3033 taught by Professor Truett during the Spring '12 term at University of Texas.

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