A company that manufactures automatic blowdown control valves (for applications where boilers are operated unsupervised for 24 to 36 hours) has fixed cost of $160,000 per year and variable cost of $400 per valve. If the company expects to sell 12,000 valves per year, determine the selling price in order for the company to (a) break even, and (b) make a profit of $400,000 per year.
What will be an ideal response?
(a) Let x = selling price per unit
0 = 12,000x - [160,000 + 400(12,000)]
= 12,000x - 4,960,000
x = $413.33
(b) 400,000 = 12,000x - 4,960,000
x = 446.67 (447 valves per year)
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