Fixed Cost = 100000

Sale Price = 120

Total variable cost = 50+10+10 = 70
Contribution margin = Sale price variable cost
= 120-70 = 50
Hence, breakeven point (units) = fixed cost / contribution margin
= 100000/50
= 2,000 units
Breakeven sales = breakeven units * sale price = 2,000*120
= $240,000

Project Sales = 3,500 units

Total Sales = 3,500*120 = $420,000
Total Variable Cost = 3500*70 = $245,000
Fixed cost = $100,000
We know, profit = Sales variable cost fixed cost
= $420,000-$245,000-$100,000
= $75,000

3 (b) 4It is observed that the breakeven point is 2,000 units. The projection of sales
is 3,500 units per year. Therefore, it is estimated that the firm would start making
profit from the first year onwards. At the projected sales (3,500 units), the firm can
earn a big profit of $75,000. If we closely observe the revenue curve we can see the
firm has maximum profit ($89,000) at sales level of 4,200 quantities. Therefore, the
firm is quite safe if they decide going with the plan. However, they need to make
sure that they do not produce more than 4,200 units.

Demand Curve
5000

Quantiy
0
95

100

105

110

115

120

125

130

135

Price

Price elasticity of demand shows the relationship between the demand for a
particular good and the change in its price. The above graph shows, as the price
increases the demand decreases accordingly. We can see the demand was highest
at the lowest price; whereas, demand is lowest at highest price (which is $120).

Revenue Curve
100000

Revenue

50000
0
2000

2500

3000

3500

4000

4500

5000

Quantity

Price
130
125
120
115
100

Quantity
2500
3000
3500
4200
4500

Revenue
50000
65000
75000
89000
35000

If we observe the Revenue curve, the profit is maximum at circled point. We can see
that, revenue increases due to increase in quantity supplied. However, after the
point where profit is maximum, profit decreases due to a decrease in demand.