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DO it Best Company produces cars. Each car is sold for a price of $100. Variable production cost is $40 per car, while other variable costs are $20 per car. Fixed costs are $60 000 annually. The firm can produce up to 2,500 cars annually.
Question 1: Prepare a breakeven chart. Use the chart to identify:
i. Breakeven revenue and units
ii. The profit/loss if 1000 cars are produced and sold
iii. The margin of safety (in dollars) if 2,000 cars are produced and sold
Question 2: The company is considering a 10% reduction in selling price. Calculate the new breakeven in units, and advise the firm whether it should reduce the price.
Question 3: What net income will the firm make if it's making 3000 cars annually?
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