XYZ company's cost function for the next four months is C = 500,000 + 5Q
a/ Find the BE dollar volume of sales if the selling price is br. 6 / unit
b/ What would be the company's cost if it decides to shut down operations for the next four months
c/ If, because of strike, the most the company can produce is br. 100,000 units, should it shutdown? Why or why not?
Thought we did this already.
(a) BE is when cost = revenue, or
500,000+5Q = 6Q
(b) duh - they told you that the cost is C
(c) compare C against revenue for Q=100,000
need answer
a/ To find the break-even (BE) dollar volume of sales, we need to determine the quantity of units (Q) that need to be sold in order for the company to cover its costs.
Given:
Cost function: C = 500,000 + 5Q
Selling price per unit: br. 6
To find the BE dollar volume of sales, we'll set the revenue equal to the cost:
Revenue = Cost
The revenue can be found by multiplying the selling price per unit (br. 6) by the quantity of units sold (Q):
Revenue = 6Q
Setting the revenue equal to the cost function, we have:
6Q = 500,000 + 5Q
Now we can solve for Q:
6Q - 5Q = 500,000
Q = 500,000
Therefore, the break-even quantity of units (Q) is 500,000 units. To find the BE dollar volume, we multiply the break-even quantity of units by the selling price per unit:
BE dollar volume of sales = br. 6 * 500,000 units = br. 3,000,000
So, the BE dollar volume of sales for XYZ company would be br. 3,000,000 if the selling price is br. 6 per unit.
b/ If the company decides to shut down operations for the next four months, it means no units will be produced or sold. Therefore, the cost would be zero (0).
c/ If the most the company can produce is br. 100,000 units due to a strike, we need to compare the cost of producing these units to the revenue generated by selling them.
First, let's calculate the cost of producing br. 100,000 units:
C = 500,000 + 5Q
C = 500,000 + 5(100,000) = 500,000 + 500,000 = br. 1,000,000
Now, let's calculate the revenue generated by selling br. 100,000 units:
Revenue = Selling price per unit * Quantity of units
Revenue = br. 6 * 100,000 = br. 600,000
Since the revenue of br. 600,000 is less than the cost of br. 1,000,000, it would not be profitable for the company to produce and sell the limited units due to the strike. In this case, it might be better for the company to shut down operations temporarily.