Determining The Minimum Level Of Production Assignment Paper

### Company $ABC$ can produce a certain transistor at a cost of $¥1.20$ for labor, $P2$ for material and a variable cost of $P0.50$ for each transistor. The corresponding company’s fixed cost in running the business is $F300,000$ per month. Determine the minimum level of production per month that should be attained in order not to incur any loss if the selling price per transistor is $P4$. Determining The Minimum Level Of Production Assignment Paper

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### Step-by-step

Step 1/3

*Note- I have used “$” as the sign against the sign that is contained in the question, because there isn’t an option to type that sign.

To determine the minimum level of production per month that should be attained in order not to incur any loss, we need to calculate the break-even point.

The break-even point is the level of production at which the total revenue earned is equal to the total costs incurred, i.e., there is no profit or loss.

The total cost of producing one transistor is:

Total Cost = Labor Cost + Material Cost + Variable Cost Total Cost = $1.20 + $2 + $0.50 = $3.70

If the selling price per transistor is $4, then the profit per transistor is:

Profit per Transistor = Selling Price – Total Cost Profit per Transistor = $4 – $3.70 = $0.30. Determining The Minimum Level Of Production Assignment Paper

- Explanation for step 1

Since the selling price per transistor is $4, we can calculate the profit per transistor by subtracting the total cost from the selling price. This gives us a profit per transistor of $0.30.

The problem asks us to determine the minimum level of production per month that should be attained in order not to incur any loss if the selling price per transistor is $4, given the cost of production for labor, material, variable costs, and fixed costs.

To solve this problem, we need to calculate the break-even point, which is the level of production where the total revenue earned is equal to the total costs incurred, and there is neither profit nor loss.

We start by calculating the total cost of producing one transistor, which includes the cost of labor, cost of material, and variable cost. This gives us a total cost of $3.70 per transistor. Determining The Minimum Level Of Production Assignment Paper

**Step 2/3**

To break even, the total revenue must cover the fixed costs and the variable costs, which is the cost per unit multiplied by the number of units produced.

Let x be the number of transistors produced per month to break even. Then, the total revenue can be expressed as:

Total Revenue = Selling Price x Number of Transistors Total Revenue = $4x

The total cost can be expressed as:

Total Cost = Fixed Cost + Variable Cost x Number of Transistors Total Cost = $300,000 + $0.50x

Setting the total revenue equal to the total cost, we have:

$4x = $300,000 + $0.50x

Solving for x, we get:

$3.50x = $300,000 x = $300,000 / $3.50 x = 85,714.29

- Explanation for step 2

To break even, the total revenue earned must cover the fixed costs and the variable costs. We set the total revenue equal to the total cost, and then solve for the level of production (number of transistors produced per month) that achieves this balance.

The formula for total revenue is the selling price per transistor multiplied by the number of transistors produced. The formula for total cost is the sum of the fixed cost and the variable cost per transistor multiplied by the number of transistors produced.

We set the two formulas equal to each other and solve for the number of transistors produced. This gives us a minimum level of production of 85,715 transistors per month to break even Determining The Minimum Level Of Production Assignment Paper.

**Step 3/3**

- Explanation for step 3

At this level of production, the total revenue earned will be $342,860 (85,715 x $4), which will cover the total cost of $342,857.50 ($300,000 fixed cost + 85,715 x $0.50 variable cost per unit).

Therefore, producing at least 85,715 transistors per month is the minimum requirement for the company to cover its costs and not incur any loss.

Final answer