EBK PRINCIPLES OF OPERATIONS MANAGEMENT
EBK PRINCIPLES OF OPERATIONS MANAGEMENT
11th Edition
ISBN: 9780135175644
Author: Munson
Publisher: VST
Question
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Chapter 7, Problem 10P

a)

Summary Introduction

To determine: The crossover point in units.

Introduction: The crossover point is the point at which revenue and expenses of the firm are equal. The company will experience neither loss nor profit at break-even point. Feasibility of the project can be determined using the crossover point.

a)

Expert Solution
Check Mark

Answer to Problem 10P

The crossover point is 82,000 units.

Explanation of Solution

Given information:

Selling price = $2.50 / bag

High speed shredder:

Fixed cost = $85,000 / month

Variable cost = $1.25 / bag

Clunker:

Fixed cost = $44,000 / month

Variable cost = $1.75 / bag

Crossover point:

Formation of equation:

Let ‘x’ denote the number of units. The total cost is calculated by summing the fixed cost with the value obtained by multiplying the total variable cost with ‘x’.

High speed shredder:

Total cost=Fixed cost+(Variable cost×x)=85,000+(1.25×x)=85,000+1.25x (1)

Clunker:

Total cost=Fixed cost+(Variable cost×x)=44,000+(1.75×x)=44,000+1.75x (2)

Calculation of crossover point:

The crossover point is calculated by equating equation (1) with (2).

Equating (1) with (2):

1.25x+85,000=1.75x+44,00085,00044,000=1.75x1.25x0.5x=41,000

x=41,0000.5x=82,000 units

Hence, the crossover point is 82,000 units.

b)

Summary Introduction

To determine: The monthly profit or loss for high speed shredder when selling 60,000 bags per month.

b)

Expert Solution
Check Mark

Answer to Problem 10P

The monthly loss is $10,000.

Explanation of Solution

Given information:

Monthly sales = 60,000 bags

Selling price = $2.50 / bag

Calculation of total revenue:

Total revenue is calculated by multiplying the monthly sales with the selling price of the bag.

Total revenue=Monthly sales×Selling price=60,000×2.50=$150,000

Calculation of total cost:

The total cost is calculated by adding the total fixed cost with the total variable costs for 60,000 bags.

Total cost=Fixed cost+(Variable cost×60,000)=85,000+(1.25×60,000)=85,000+75,000=$160,000

Calculation of monthly profit or loss:

The profit or loss is calculated by subtracting the total revenue with the total costs.

Profit/loss=Total revenueTotal costs=150,000160,000=$10,000(Loss)

Hence, the monthly loss is $10,000.

c)

Summary Introduction

To determine: The monthly profit or loss for Clunker when selling 60,000 bags per month.

c)

Expert Solution
Check Mark

Answer to Problem 10P

The monthly profit is $1,000.

Explanation of Solution

Given information:

Monthly sales = 60,000 bags

Selling price = $2.50 / bag

Calculation of total revenue:

Total revenue is calculated by multiplying the monthly sales with the selling price of the bag.

Total revenue=Monthly sales×Selling price=60,000×2.50=$150,000

Calculation of total cost:

The total cost is calculated by adding the total fixed cost with the total variable costs for 60,000 bags.

Total cost=Fixed cost+(Variable cost×60,000)=$44,000+($1.75×60,000)=$44,000+$105,000=$149,000

Calculation of monthly profit or loss:

The profit or loss is calculated by subtracting the total revenue with the total costs.

Profit/loss=Total revenueTotal costs=$150,000$149,000=$1,000(Profit)

Hence, the monthly profit is $1,000.

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Chapter 7 Solutions

EBK PRINCIPLES OF OPERATIONS MANAGEMENT

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