Question

Gray Fullbuster Inc. manufactures ice Cube Trays. One of the managers is considering raising the current price of ice cube trays $31 per unit by 10%. If this price increase goes through, it is estimated that demand will decrease by 20,000 units per month. Gray currently sells 51,600 units per month, each of which costs $22 in variable costs. Fixed costs are $182,000. Required: a. What is the current profit? b. What is the current break-even point in units?

Answer 1

Gray Fullbuster Inc.'s current profit is $282,400 per month. The break-even point in units, assuming we must sell whole units, is 20,223 units to cover all costs including fixed and variable costs.

Step-by-step explanation:

To calculate the current profit for Gray Fullbuster Inc., we need to determine the total revenue, total variable costs, and subtract the fixed costs.

• Total revenue = Selling price per unit * Number of units sold per month
  = $31 * 51,600 units = $1,599,600
• Total variable costs = Variable cost per unit * Number of units sold per month
  = $22 * 51,600 units = $1,135,200
• Profit = Total revenue - Total variable costs - Fixed costs
  = $1,599,600 - $1,135,200 - $182,000 = $282,400

Therefore, the current profit is $282,400 per month.

For the current break-even point in units:

• Break-even point (in units) = Fixed costs / (Selling price per unit - Variable cost per unit)
  = $182,000 / ($31 - $22) = 20,222.22 units

The break-even point is approximately 20,222 units (since we cannot sell a fraction of a unit, it would require selling 20,223 units to cover all costs).