BREAK-EVEN

Sample Problem
Sample Problem
A postal service carrier works on Sunday
delivering special high priority letters. She can
deliver 15 letters per hour. The hourly fixed cost
are equal $42 and the hourly variable costs total
to $0.50 per letter. How much must the postal
service charge for each letter delivered in order
to break even on Sunday deliveries?
Problem 1
A manufacturing company leases for $100,000 per year a
building that houses its manufacturing facilities. In addition,
the machinery in the building is being paid for installments
of $20,000 per year. Each unit of product produced costs $15
in labor and $10 in materials and can be sold for $40.

a. How many units per year must be sold for the company
to break even?
b. If 10,000 units per year are sold, what is the annual profit?
c. If the selling price is lowered to $35 per unit, how many
units must be sold each year for the company to earn a
profit of $60,000 per year?
Problem 2
A company produces circuit boards to update the
outdated computer equipment. The fixed cost is $42,000
per month and the variable cost is $53 per circuit board.
The selling price per unit is p = $150 – 0.02D. Maximum
output of the plant is 4000 units per month.

(a) Determine the optimum value for this product.

(b) What is the maximum profit per month?
(c) At what volumes does break-even occur?
(d) What is the company’s range of profitable demand?

 
Problem 3
A company produces and sells a consumer product and thus far has
been able to control the volume of the product by varying the selling
price. The company is seeking to maximize its net profit. It has been
concluded that the relationship between price and
D = 500  5 pdemand,
, per month,
is approximately where p is the price per unit in dollars. The
fixed cost is $1,000 per month, and the variable cost is $20 per unit. Obtain
the answer mathematically to the following questions:

a. What is demand that will maximize revenue per month and the
maximum revenue
b. What is the optimal number of units that should be produced and
sold per month?
c. What is the maximum profit per month?
d. What are the breakeven sales quantities and the range of profitable
demand (volume)?  
Problem 4
A company has established that the relationship
between the sales price for one of its products and
the quantity sold per month is approximately D =
780 – 10p units. The fixed cost is $800 per month, and
the variable cost is $30 per unit produced.

What number of units should be produced per

month and sold to maximize net profit? What is the
maximum profit per month? Determine the range of
profitable demand.