breakeven analysis

iemg40 - Eng'g Economy

  1. A large wood products company is negotiating a contract to sell plywood overseas. The fixed cost that can be allocated to the production of plywood is $900,000 per month. The variable cost per thousand board feet is $131.50. The price charged will be determined by p=600 ā€“ 0.05D per 1,000 board feet.
    a. Determine the optimal monthly sales volume for this product. (ans.4,685)
    b. Calculate the profit (or loss) at the optimal volume. (ans.$197,461.25)
    c. What is the domain of profitable demand? (ans.Dā€™1=2,698; Dā€™2=6,673)
  2. Suppose that QP Corporation has a production (and sales) capacity of P1,000,000 per month. Its fixed costs are P350,000 per month, and the variable costs are P0.65 per dollar of sales.
    a. What is the annual breakeven point volume? (ans.12,000,000)
    b. What would be the effect on the breakeven point if decreasing the variable cost by 25%; if the fixed costs thereby increased by 10%? (ans.9,014,635)

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