1 20 points EmKay Electricals operates a factory that has fi

1) (20 points) EmKay Electricals operates a factory that has fixed costs of $2,000,000 per year. The output capacity (maximum it can produce) of the factory is 100,000 electrical appliances per year. The variable cost is $50 per unit, and the electrical appliance sells for S90 per unit. Answer the following questions Ignore the time value of money) a) (12 points) Determine the number of units that the factory must produce and sell per year in order to breakeven. Express this breakeven production volume as a percentage of the output capacity. b) (8 points) When the factory is operating at 80% of output capacity, what is the annual profit or loss expected?

Solution

Req 1. Selling price per unit 90 Less: Variable cost per unit 50 Contribution margin per unit 40 Total fixed cost: $ 200,000 Break even point: Total fixed cost/ Contribution mrgin pr unit 200,000 /40 = 5000 units Req 2: Actual sales 8000 units (80% of 10000 units) Sales revenue(8000*90) 720000 Less: Variable cost (8000*50) 400000 Contribution margin 320000 Less: Fixed cost 200000 Net Income 120000