1. ABC companys cost function for the next four months is C= 500,000 + 5q.

Required:
The break-even dollar volume of sales if the selling price is Birr 6 per unit.
What would be the companys cost if it decided to shut down operations for the next four months?
If, b/s of a strike, the most the company can produce is 100,000 units, should it shut down? Why or why not?

what is the answer

Answer

To find the break-even dollar volume of sales, we need to set the cost function equal to the total revenue function.

Given:
Cost function: C = 500,000 + 5q
Selling price per unit: 6 Birr

To find the break-even point, we need to set the cost equal to the revenue:
Cost = Revenue

500,000 + 5q = 6q

Rearranging the equation:
500,000 = q

The break-even dollar volume of sales would be 500,000 Birr.

To find the cost if the company decides to shut down operations for the next four months, we need to substitute q = 0 into the cost function:
C = 500,000 + 5(0)
C = 500,000

The cost would be 500,000 Birr if the company decided to shut down operations for the next four months.

If, due to a strike, the company can produce a maximum of 100,000 units, we can substitute q = 100,000 into the cost function to find the cost:
C = 500,000 + 5(100,000)
C = 500,000 + 500,000
C = 1,000,000

The cost would be 1,000,000 Birr if the company produces 100,000 units due to the strike.

The decision to shut down depends on whether the cost of producing 100,000 units exceeds the revenue from selling those units. It is not possible to determine this without additional information about the revenue function or the selling price of the units.

To find the break-even dollar volume of sales, we need to find the quantity at which the company's revenue equals its cost. In this case, the selling price is Birr 6 per unit, and the cost function is given as C = 500,000 + 5q.

1. Break-even volume of sales:
To find the break-even volume, set the revenue equal to the cost:
Revenue = Selling price per unit * Quantity = 6q
Cost = 500,000 + 5q
To find the break-even point, equate the revenue and cost:
6q = 500,000 + 5q
Simplifying the equation:
q = 500,000

The break-even dollar volume of sales would be 500,000 units.

2. Cost if the company shuts down operations:
If the company decides to shut down operations, there will be no production, and therefore no quantity (q). To find the cost in this scenario, substitute q = 0 into the cost function:
C = 500,000 + 5(0)
C = 500,000

The company's cost would be Birr 500,000 if it decided to shut down operations for the next four months.

3. Production limit due to strike:
If the maximum the company can produce due to the strike is 100,000 units, we need to compare the cost of production with the cost of shutting down. Calculate the cost for producing 100,000 units:
C = 500,000 + 5(100,000)
C = 500,000 + 500,000
C = 1,000,000

The cost of production with a limit of 100,000 units is Birr 1,000,000.

Now, compare the cost of shutting down, which is Birr 500,000, with the cost of production, which is Birr 1,000,000. In this case, the cost of production is higher than the cost of shutting down.

Therefore, it is more cost-effective for the company to shut down operations because the cost of production is greater than the cost of shutting down.