Question

The Rolling Creek textile Mill produces denim. The fixed monthly cost is $21,000, and the variable cost per yard of denim is $0.45. The mill sells a yard of denim for $1.30. a. For a monthly volume of 18,000 yards of denim, determine the total cost, total revenue, and profit. b. Determine the annual break even volume for the Rolling Creek Textile Mill. c. If a maximum operating capacity of the Rolling Creek Textile Mill is 25,000 yard of denim per month, determine the break even volume as a percentage of capacity.

Answer 1

The total cost, total revenue and profits when units is 18000 yards are $29100,$23400,-$5700,break even point is 24705.88 yards which is 98.82% of the capacity of the mill.

Given that the fixed monthly cost is $21000, variable cost be per yard be $0.45 and selling price be $1.30 per yards.

We are required to find the total cost,total revenue and profits when units is 18000 and break even point.

let the annual units be x yards.

Total cost=21000+0.45x.

Total revenue=1.30x.

1) When volume is 18000 units.

TC=21000+0.45*18000

=21000+8100

=$29100

TR=1.30*18000

=$23400

Profit=23400-29100

=-$5700

2) Annual cost=12(21000+0.45x)

Annual revenue=15.60x

Break even point lies at a point where revenue is equal to cost.

12(21000+0.45x)=15.60x

252000+5.40x=15.60x

10.20x=252000

x=24705.88 yards

3) Percentage of break even point to capacity=

=Breakeven point/ capacity

=24705.88/25000*100

=98.82%

Hence the total cost, total revenue and profits when units is 18000 yards are $29100,$23400,-$5700,break even point is 24705.88 yards which is 98.82% of the capacity of the mill.

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