A subsidiary of a major furniture company manufactures wooden pallets. The plant has the capacity to produce 300,000 pallets per year. Presently the plant is operating at 70% of capacity. The selling price of the pallets is $18.25 per pallet and the variable cost per pallet is $15.75. At zero output, the subsidiary plant’s annual fixed costs are $550,000. This amount remains constant for any production rate between zero and plant capacity. Solve, a. With the present 70% of capacity production, what is the expected annualprofit or loss for the subsidiary plant. b. What annual volume of sales (units) is required in order for the plant to break even? c. What would be the annual profit or loss if the plant were operating at 90% of capacity? d. If fixed costs could be reduced by 40%, what would be the new breakeven sales volume?
A subsidiary of a major furniture company manufactures wooden pallets. The plant has the capacity to produce 300,000 pallets per year. Presently the plant is operating at 70% of capacity. The selling price of the pallets is $18.25 per pallet and the variable cost per pallet is $15.75. At zero output, the subsidiary plant’s annual fixed costs are $550,000. This amount remains constant for any production rate between zero and plant capacity. Solve, a. With the present 70% of capacity production, what is the expected annual
profit or loss for the subsidiary plant. b. What annual volume of sales (units) is required in order for the plant to break even? c. What would be the annual profit or loss if the plant were operating at 90% of capacity? d. If fixed costs could be reduced by 40%, what would be the new breakeven sales volume?
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