Question

A producer of pottery is considering the addition of a new plant to absorb the backlog of demand that now exists. The primary location being considered will have fixed costs of $ 7,500 per mont

Answer 1

A business decision about potential manufacturing expansion, focused on understanding economies of scale and their impact on production costs as related to the scale of output.

Step-by-step explanation:

A pottery producer considering the establishment of a new manufacturing plant to meet existing demand. The decision involves understanding the concept of economies of scale, which describes the cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output decreasing with increasing scale.

Figures provided show various production plants (S, M, L, and V) with differing average costs of production based on their output levels. Plant S, with smaller production levels, has higher costs ($30), while Plant M benefits from economies of scale and has lower costs ($20). This trend continues with Plants L and V, where the costs drop to $10 per toaster oven. Economies of scale are maximized at an output of 150 units, beyond which the average costs do not decrease further even if the plant size increases, as seen with Plant V.

The figures help explain when additional plant capacity may or may not result in cost savings. They indicate a plateau in cost savings beyond a certain point, suggesting that expanding beyond an optimal scale of operation may not result in additional cost efficiencies.

Answer 2

The break-even volume for the pottery producer if the primary location is being considered will have fixed costs of $7,500 per month, variable costs of 65 cents per unit produced, and each item is sold to retailers at a price that averages 95 cents is 25,000 units per month.

Step-by-step explanation:

A producer of pottery is considering the addition of a new plant to absorb the backlog of demand that now exists. The question asks us to calculate the volume per month required for the producer to break even. To do this, we need to consider both fixed costs and variable costs. The fixed costs provided are $7,500 per month, and the variable cost per unit is 65 cents. Each item is sold for 95 cents.

To calculate the break-even volume, we use the formula Break-even volume = Fixed costs / (Selling price per unit - Variable cost per unit). Plugging in the values, we have:

Break-even volume = $7,500 / (95 cents - 65 cents)

Break-even volume = $7,500 / 30 cents = 25,000 units.

Therefore, the pottery producer needs to produce and sell 25,000 units each month to cover the costs and break even.

Your question is incomplete, but most probably your full question was

A producer of pottery is considering the addition of a new plant to absorb the backlog of demand that now exists. The primary location being considered will have fixed costs of $7,500 per month and variable cost of 65 cents per unit produced. Each item is sold to retailers at a price that averages 95 cents. (Round all answers to a whole number.)

What volume per month is required in order to break even?