Question

If Gabe's Soccer Ball Company is able, due to competitive pressure, to charge $60 for a new soccer ball, while one soccer ball costs $28 to make, plus $15,000 per month in overhead costs (mostly Gabe's extravagant salary) find: a. The average cost c(x) of producing each soccer ball b. Algebraically find the number of soccer balls Gabe's company must produce per month in order to break even (Profit = 0). Profit = Total Revenue – Total Cost c. Algebraically find the number of soccer balls Gabe's company must make to earn a profit of $10,000 per month. d. If Gabe took a pay cut to reduce the overhead costs to $8,000 per month, how many fewer balls would the company have to sell to break even. (There are multiple ways to get this result).

Answer 1

Results are below.

Explanation:

Giving the following information:

Selling price= $60

Unitary variable cost= $28

Fixed costs= $15,000

First, we need to calculate the average total cost:

Average cost= total cost / number of units

For example, for 1 unit and 10,000 units:

1 unit:

Average cost= 15,028/1 = 15,028

10,000 units:

Average cost= (15,000 + 28*10,000) / 10,000

Average cost= $29.5

Now, we can calculate the break-even point in units:

0= (60*x) - (28*x) - 15,000

x= number of units to break-even

0= 32x - 15,000

15,000/32= x

468.75=x

break-even point in units= 469

For the desired profit of $10,000:

10,000 = (60*x) - (28*x) - 15,000

25,000= 32x

781.25= x

Break-even point= 782 units

Finally, fixed costs dropped by $8,000:

0= 32x - 7,000

x= 7,000/32

x= 218.75

Break-even point= 219

Difference= 250 units