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Profit = Total Revenue – Total Fixed Cost – Total Variable Costs
0 = 700x – 45 000 – 450x
0 = 250x – 45 000
45 000 = 250x
X = 180
At the point of x = 180, profit is $0. We need to sell at least 180 units of this project to make profit gain.
Sales Forecast Profit = 700s – 45 000 – 450s
Production Quantity Profit = 700q – 45 000 – 450q
When solving for profit, you would just substitute whether you use sales forecast or production quantity variables for profit earned. Using sales forecast will give you the profit you earn after selling your sales forecast, whereas using production quantity will give you profit earned from selling the wallets SPC produced. When solving for profit, you have to take the value of q or s that is smaller. This is because if the sales forecast is lower than the production quantity, the firm will only sell that forecast whereas if they produced less than the forecast, they would sell all the goods because they don’t have enough to satisfy market needs.
Using q = 350, our profit becomes $42,500.00, assuming that we sell all wallets produced by SPC. This will only work when the sales forecast is greater than the production quantity.
Using s = 400, our profit becomes $10,000.00, assuming that SPC only sells the wallets that were forecasted. This will only work when sales forecasted is less than the production quantity.
Using q = 350 and s = 400, we were unable to find a breakeven point because the profit earned off of those values were too high. In order to find a breakeven point, we will need to set lower s and q variables.
When s = 80, in order to operate without losing any money, SPC should not make any wallets at all. It will not be profitable when the sales forecast is set so low. Therefore production quantity will be 0; revenue, cost and profit will also all be at $0.
When s = 300, in order to operate without losing any money, SPC will have to produce at least 180 wallets to make the...
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