Question

Northwest Molded molds plastic handles with a variable cost of $1.00 per handle. The fixed cost to run the molding machine is $2560 per week. If the company sells the handles for $3.00 each, how many handles must be molded weekly to break even? What is the profit if 1500 handles are produced and sold?

Answer 1

To break even it must be molded 1280 handles weekly.

The profit if 1500 handles are produced and sold is $440

Explanation:

To break even, the amount of total cost must be the same as the amount of revenues.

Total Cost is Fixed cost plus unitary variable cost multiplied by the produce quantity.

Total cost= FC + vc*Q

Where

FC=Fixed cost

vc=unitary variable cos

Q=produce quantity

Revenue= Price * Q

Break even FC + vc*Q=Price * Q

Isolating Q

FC=(Price * Q)-(vc*Q)

FC=(Price-vc) * Q

Q= FC/(Price-vc)

Q= $2560/($3.00-$1.00)=1280

If we sold 1500 handles

Profit = Revenue- Total cost =(Price * Q)-(FC + vc*Q)

P=$3.00 *1500-$2560 - $1.00*1500=

P=$4500-$2560-$1500=440