Answer:
a. The firm's annual profit is $50,000
b. The price for each unit is $1 per unit
c. The volume of sales (quantity) the firm breaks even: $600,000 (600,000 units)
Explanation:
The firm operates at 70 percent of capacity. The number of units the firm produces: 1,000,000 x 70% = 700,000 units
Total variable costs = Variable costs per unit x 700,000 units = $0.50 x 700,000 = $350,000
Net income = Revenue - Total variable costs - Total fixed costs = $700,000 - $350,000 - $300,000 = $50,000 >0
The firm's annual profit is $50,000
The price for each unit = Revenue/ number of units sold (produced) = $700,000/700,000 = $1 per unit
The break-even point is calculated by using following formula:
Break-even point in units = Fixed cost/(Selling price per unit-Variable costs per unit) = $300,000/($1-$0.50) = 600,000 units
Sales at the firm breaks even = 600,000 x $1 = $600,000
a. The firm's annual profit is $50,000
b. The price for each unit is $1 per unit
c. The volume of sales (quantity) the firm breaks even: $600,000 (600,000 units)
Firm's annual profit
Since the firm operates at 70 percent capacity, then;
The number of units the firm produces
= 1,000,000 x 70%
= 700,000 units
Also,
Total variable costs
= Variable costs per unit x 700,000 units
= $0.50 x 700,000
= $350,000
Therefore,
Net income
= Revenue - Total variable costs - Total fixed costs
= $700,000 - $350,000 - $300,000
= $50,000
The price for each unit
= Revenue / number of units sold (produced)
= $700,000 / 700,000
= $1 per unit
Volume of sales (quantity) does the firm break even
Break-even point in units
= Fixed cost / (Selling price per unit - Variable costs per unit)
= $300,000 / ($1 - $0.50)
= 600,000 units
Therefore,
Sales at the firm breaks even
= 600,000 x $1
= $600,000
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