A surfboard manufacturer lost $500,000 last year during a recession. Total revenue was $5,000,000 and total variable costs were 40% of sales. The production facility ran at 50% capacity. The production manager wants to know the following: a. What is the percent capacity required to break even? b. When the economy recovers this year, if the plant runs at 100% capacity what net income could the company realize? c. There is a possibility that sales could be so strong this year that the plant may be required to run at 120% capacity by offering a lot of overtime to its production workers. This would result in total variable costs rising by 35%. On a strictly financial basis, should the production manager plan to exceed canacity or should be advise ton management to
A surfboard manufacturer lost $500,000 last year during a recession. Total revenue was $5,000,000 and total variable costs were 40% of sales. The production facility ran at 50% capacity. The production manager wants to know the following: a. What is the percent capacity required to break even? b. When the economy recovers this year, if the plant runs at 100% capacity what net income could the company realize? c. There is a possibility that sales could be so strong this year that the plant may be required to run at 120% capacity by offering a lot of overtime to its production workers. This would result in total variable costs rising by 35%. On a strictly financial basis, should the production manager plan to exceed canacity or should be advise ton management to
ChapterP: Prerequisites
SectionP.6: The Rectangular Coordinate System And Graphs
Problem 7ECP
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Question
Transcribed Image Text:A surfboard manufacturer lost $500,000 last year
during a recession. Total revenue was $5,000,000
and total variable costs were 40% of sales. The
production facility ran at 50% capacity. The
production manager wants to know the following:
a. What is the percent capacity required to break
even?
b. When the economy recovers this year, if the plant
runs at 100% capacity what net income could the
company realize?
c. There is a possibility that sales could be so strong
this year that the plant may be required to run at
120% capacity by offering a lot of overtime to its
production workers. This would result in total variable
costs rising by 35%. On a strictly financial basis,
should the production manager plan to exceed
capacity or should he advise top management to
freeze production at 100% capacity? Justify your
answer.
Answer
Solution-
9a. 58.3%
9b. $2,500,000
9c. $3,100,000
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