A manufacturing company produces expensive toys. Each toy sells for $250 and costs $90. The company incurs a fixed cost of $7500 per day to lease their machines to manufacture the toys. Depending on the volume of production the company must also hire and schedule enough employees to carry out the production. The additional labor costs are $550, $1200, and $2650 per day, when the production volume is 0 to 35 units, 0 to 70 units, and 0 to 100 units per day, respectively.  The company forecasts the daily expected demand for its toys to be 90 units.

a) Compute the break-even point for each range of production volume separately.

b) Which production volume range is the best for the company? Explain clearly why. 

c) Suppose the company has a production capacity of 100 units per day. (Use this information independent of the production volumes mentioned above). What is the capacity cushion (in terms of no. of units) if the company produces only as much as the forecasted demand? What is the capacity cushion in terms of percentage unutilized production capacity if the company produces only as much as the forecasted demand? What is the resulting production capacity utilization?  

Answer rating: 100% (QA)

a Particulars Amount A Sales 90 units 22500 B Cost 8100 C Labour cost 2650 ... View the full answer