Question

A manufacturing company leases a building for $100,000 per year for its production facilities. In addition the machinery used in this building is being paid for in installments of $20,000/year. Each unit of production costs $15 in labor and $10 in materials. If 10,000 units per year are sold at $40 each , what is the annual profit? ( Please show as much work as possible)

(A) $280,000
(B) $50,000
(C) $150,000
(D)-$50,000
(E) $30,000

Answer 1

Answer:

(E) $30,000

Explanation:

For computing the annual profit, the following formula is used.

Annual Profit = Total revenues - total cost

where,

Total revenue = Number of units × selling price per unit

                        = 10,000 units × $40

                        = $40,000

And, the total cost = lease cost + installment amount + variable cost

                              = $100,000 + $20,000 + ($10,000 units × $15 + $10,000 units × $10)

                              = $120,000 + $250,000

                              = $370,000

Now put these values to the above formula

So, the answer would be equal to

= $400,000 - $370,000

= $30,000