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A local manufacturer of gears produces a miniature bevel gear and sells it for $15.30. The direct cost of production is $8.25 per unit. The fixed cost for the manufacturing facility is $135,000.
a. Determine the volume of production required to breakeven assuming the company sells all the units that they produce.
b. Compute the necessary quantity which must be sold to achieve a profit $100,000 for a production volume of 50,000 units.
c. The company is considering fully automating its production facility, which would raise the level of the fixed costs to $280,000. However the variable costs would drop to $7.20 per unit. If the demand for the bevel gear were such that the company can sell all that they produce, determine the volume of production which would make management indifferent to the automation option versus the existing production system.
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