Worksheets & Notes
Stay in Touch
Stay in Touch is a well-known national company with a good reputation. It manufactures and markets mobile phones.
To be more competitive in both international and domestic markets the management of Stay in Touch is considering the possibility of contracting out the production of the mobile phones. They are in discussions with Speedy which is a specialized manufacturing company, located in a developing country. Speedy manufactures similar types of mobile phones for various companies around the world and is looking for more business as it currently operates below full capacity. The contracting-out option will enable Stay in Touch to concentrate on both research and development and the marketing of their machines. Stay in Touch’s target profit is $15 million.
Stay in Touch currently produces 1 million units per year. Variable costs are $10 per unit with total fixed costs of $5 million.
Each mobile phone is sold for $25 per unit.
In the event of contracting out, Stay in Touch will save $5 million fixed costs as a result of closing down production. Speedy will charge Stay in Touch $13 for each phone.
Speedy’s current production level is 10 million units per year, two million less than their full capacity. Their variable costs of production are $12 per unit with fixed costs of $60 million. They sell the phones to other companies at $20 per unit.
Please note: Clearly show all your working when calculations are required.
1.
(i) Calculate the break-even level of output for Stay in Touch.
[2 marks]
(ii) Calculate the number of phones that Stay in Touch will have to sell to achieve their target level of profit of $15 million.
[2 marks]
Stay in Touch is a well-known national company with a good reputation. It manufactures and markets mobile phones.
To be more competitive in both international and domestic markets the management of Stay in Touch is considering the possibility of contracting out the production of the mobile phones. They are in discussions with Speedy which is a specialized manufacturing company, located in a developing country. Speedy manufactures similar types of mobile phones for various companies around the world and is looking for more business as it currently operates below full capacity. The contracting-out option will enable Stay in Touch to concentrate on both research and development and the marketing of their machines. Stay in Touch’s target profit is $15 million.
Stay in Touch currently produces 1 million units per year. Variable costs are $10 per unit with total fixed costs of $5 million.
Each mobile phone is sold for $25 per unit.
In the event of contracting out, Stay in Touch will save $5 million fixed costs as a result of closing down production. Speedy will charge Stay in Touch $13 for each phone.
Speedy’s current production level is 10 million units per year, two million less than their full capacity. Their variable costs of production are $12 per unit with fixed costs of $60 million. They sell the phones to other companies at $20 per unit.
Please note: Clearly show all your working when calculations are required.
1.
(i) Calculate the break-even level of output for Stay in Touch.
[2 marks]
(ii) Calculate the number of phones that Stay in Touch will have to sell to achieve their target level of profit of $15 million.
[2 marks]
unit 5.5 worksheet |
Reading notes worksheet:
DIRECTIONS:
DIRECTIONS:
- To save a file of the notes worksheet to your computer, CLICK on picture below
- A new screen with the the notes worksheet should open in a new window. Go to FILE and make a copy of the document for your own set of notes.