ABC’ company’s 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 company’s 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?
Break-even dollar volume of sales:
500,000 + 5q = 6q
q = 500,000/1
q = 500,000 units
The company's cost if it decided to shut down operations for the next four months: 500,000
If the most the company can produce is 100,000 units, it should not shut down. This is because the company would still make a profit of 400,000 (500,000 - 100,000) if it produces 100,000 units. Shutting down would result in a loss of 500,000.