Question

patriot company manufactures flags in two sizes, small and large. the company has total fixed costs of $308,000 per year. additional data follow. small large sales price per unit $ 33 $ 44 variable costs per unit $ 24 $ 25 sales mix percent 80% 20% the company is considering buying new equipment that would increase total fixed costs by $58,000 per year and reduce the variable costs of each type of flag by $1 per unit. required: 1. compute the weighted-average contribution margin without the new equipment. 2. assume the new equipment is not purchased. determine the break-even point in total sales units and the break-even point in units for each product. 3. assume the new equipment is purchased. compute the break-even point in total sales units and the number of units to sell for each product.

Answer 1

Calculations involve determining total revenue, marginal revenue, total cost, and marginal cost at various production levels for Doggies Paradise Inc. and AAA Aquarium Co., identifying the profit-maximizing output where marginal cost equals marginal revenue.

Step-by-step explanation:

The student has provided scenarios for two separate businesses, Doggies Paradise Inc. and AAA Aquarium Co., and tasks to calculate various financial metrics. For both businesses, the task is to calculate total revenue, marginal revenue, total cost, and marginal cost for production levels from one to five units.

For Doggies Paradise Inc., the price per dog coat is $72. The fixed costs are $100, and variable costs are given for up to five units. Total revenue is the number of units sold multiplied by the price per unit. Marginal revenue in a perfectly competitive market is equal to the price as each additional unit sold at market price adds the same amount of revenue as the price.

Marginal cost for each additional unit is calculated by the change in total variable cost when an additional unit is produced. The profit-maximizing quantity is when marginal cost is equal to marginal revenue.

Similarly, for the AAA Aquarium Co., the selling price is $20 per aquarium with fixed costs of production at $20. Calculations for total revenue, marginal revenue, total cost, and marginal cost are per the same principles. The profit-maximizing output level is again where marginal cost equals marginal revenue.