Cox Electric makes electronic components and has estimated the following for a new design of one of its products.
Fixed cost = $20,625
Material cost per unit = $0.17
Labor cost per unit = $0.12
Revenue per unit = $0.62
Note that fixed cost is incurred regardless of the amount produced. Per-unit material and labor cost together make up the variable cost per unit. Assuming that Cox Electric sells all that it produces, profit is calculated by subtracting the fixed cost and total variable cost from total revenue.
Construct an appropriate spreadsheet model to find the profit based on a given production level and use the spreadsheet model to answer these questions.
(a)
Construct a one-way data table with production volume as the column input and profit as the output. Breakeven occurs when profit goes from a negative to a positive value; that is, breakeven is when total revenue = the total cost, yielding a profit of zero. Vary production volume from 0 to 100,000 in increments of 10,000. In which interval of production volume does breakeven occur?
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(b)
Use Goal Seek to find the exact breakeven point. Assign Set cell: equal to the location of profit, To value: 0, and By changing cell: equal to the location of the production volume in your model.
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