Problem statementA construction company is planning their projects for the year 2023. The companyis considering the construction of 20 buildings, each is 3,000 m². In 2018, theyhave built 8 similar buildings but with smaller areas, and the material costsassociated with those 8 buildings are shown in the following table:Building #12345Area (m²)1,4301,4751,6551,7901,961678427,696456,126461,765The materials cost index values are as shown in the following table:Year20172018201920202021202220232,0152,3752,533Cost ($)350,350358,326385,922399,387419,004Cost index321332348368379398406In 2019, the company began constructing larger units (3,000 m² units compared tothose in 2018 as shown in the first table). The labor hours required to completethe first 3,000 m² unit was 24,000 hours but the labor hours decreasedexponentially with time due to the experience gained by workers at a 90%learning slope until reaching the 15th unit, after which a steady-state was reached.Assume the 2023 average labor wage is $20 per hour and the Company's fixedannual cost (overhead) is $2,300,000.(a) What is the breakeven selling price per unit?(b) What is the selling price per unit assuming the company wishes to earn 10%profit on top of the total costs incurred?

The break-even point is the one at which the revenues generated by the firm are equal to the costs…

Answered: (a) What is the breakeven selling price…

(a) What is the breakeven selling price per unit? (b) What is the selling price per unit assuming the company wishes to earn 10% profit on top of the total costs incurred?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Problem statement
A construction company is planning their projects for the year 2023. The company
is considering the construction of 20 buildings, each is 3,000 m². In 2018, they
have built 8 similar buildings but with smaller areas, and the material costs
associated with those 8 buildings are shown in the following table:
Building #
1
2
3
4
5
Area (m²)
1,430
1,475
1,655
1,790
1,961
6
7
8
427,696
456,126
461,765
The materials cost index values are as shown in the following table:
Year
2017
2018
2019
2020
2021
2022
2023
2,015
2,375
2,533
Cost ($)
350,350
358,326
385,922
399,387
419,004
Cost index
321
332
348
368
379
398
406
In 2019, the company began constructing larger units (3,000 m² units compared to
those in 2018 as shown in the first table). The labor hours required to complete
the first 3,000 m² unit was 24,000 hours but the labor hours decreased
exponentially with time due to the experience gained by workers at a 90%
learning slope until reaching the 15th unit, after which a steady-state was reached.
Assume the 2023 average labor wage is $20 per hour and the Company's fixed
annual cost (overhead) is $2,300,000.
(a) What is the breakeven selling price per unit?
(b) What is the selling price per unit assuming the company wishes to earn 10%
profit on top of the total costs incurred?

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