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It costs $1,200 to produce 50 pounds of a chemical and it costs $2,200 to produce 150 pounds. The chemical sells for $15 per pound x is the amount of chemical; y is in dollars. a. Find the cost function. b. What is the fixed cost? c. How many pounds must be sold to break even? d. Find the cost and revenue at the break-even point.

Answer :

hyderali230

Answer:

a.

C(y) = mx + b

y = cost in dollars

x = amount of chemical

m = per unit variable cost

b = fixed cost

b.

Use High low Method to calculate the Variable cost from the total cost given

Variable Cost = ( Highest activity cost - Lowest activity cost ) / ( Highest Number of Units - Lowest Number of Units )

Variable Cost = ( $2,200 - $1,200 ) / ( 150 - 50 )

Variable Cost = $1,000 / 100

Variable Cost = $10 per unit

Fixed Cost = $2,200 - ( 150 x $10 )

Fixed Cost = $2,200 - $1,500

Fixed Cost = $700

c.

Contribution Per Unit = Price - Variable cost

Contribution Per Unit = $15 - $10

Contribution Per Unit = $5

Break-even point = $700 / $5

Break-even point = 140 Pounds

d.

Revenue = 140 x $15 = $2,100

Cost = 140 x 10 = $1,400

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