# Question & Answer: Due to new infrastructure projects and changes in city planning A auto parts manufacturing unit is…

Due to new infrastructure projects and changes in city planning A auto parts manufacturing unit is considering the relocation meaning it is moving to a different place. The owner estimates that he would incur a fixed cost of 6000\$ per week and the labour, energy and material costs to produce it is moving to a different place. The owner estimates that he would incur a He estimates and the labour, energy material costs to produce cake at that location will be 0.8\$. He estimates that the selling price of the cake can be 1.8\$. What number of auto parts must be sold in order to break even? For this new location, What profit or loss would there be on a sale of 22,000 parts per week? What number of parts will be required if the owner wants to realize a profit of 10000\$. Suppose the manufacturer decides to buy a powerful motor of 500\$ and a new lathe machine of 500\$ which will increase the fixed cost by 1000\$ more. As motor and new machine will be added to fixed cost. In this revised scenario what will be impact on break even point and now to earn a profit of 10,000\$ how many pieces will be required to sell.

Fixed cost of manufacturing per week = \$6000

Variable cost of manufacturing auto parts at new location per unit = 0.8\$

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Selling price of the auto parts per unit = \$1.8

Let sales per week be = S

Part 1:

Therefore, in order to break even,

Total Fixed cost + Total Variable cost = Total Sales (in dollar value)

\$6000 + 0.8\$ X S = \$1.8 X S

• \$6000 = \$1.0 X S
• S = 6000 auto parts

Part 2:

Expected Sales per week = 22,000

Therefore, sales per week in dollar value = 22,000 X \$1.8 = \$39600

Fixed cost of manufacturing per week = \$6000

Variable cost for manufacturing 22,000 auto parts = \$0.8 X 22,000 = \$17,600

Therefore, Total cost = Fixed Cost + Variable Cost = \$17,600 + \$6000 = \$23,600

Hence, Total Profit/Loss per week = Total revenue per week – Total cost per week = \$39,600 – \$23,600

= \$16,000

Part 3:

Expected Profit = \$10000

Let Sales per week be = ‘S’

We know that,

Profit = Total Revenue – Total cost

Therefore,

\$10000 = \$1.8 X S – (\$6000 + \$0.8 X S)

• \$10000 = \$1.0 X S – \$6000
• \$1.0 X S = \$10000 + \$6000
• S = 16000

Part 4:

New Fixed cost = \$6000 + \$500 + \$500 = \$7000

Therefore, in order to break even,

Total Fixed cost + Total Variable cost = Total Sales (in dollar value)

\$7000 + 0.8\$ X S = \$1.8 X S

• \$7000 = \$1.0 X S
• S = 7000 auto parts

And, in order to make a profit of \$10000

\$10000 = \$1.8 X S – (\$7000 + \$0.8 X S)

• \$10000 = \$1.0 X S – \$7000
• \$1.0 X S = \$10000 + \$7000
• S = 17000