Question

In efforts of improving their orofit margins, a company is considering creating their own manufacturing plant for their product. It had a start-up cost of 25,000 to build the plant. This plant will drop the production cost down to $15 per item. If each item sells for $50, then how many items would it take to get an overall profit of $100,000 for the year?

Answer 1

To get an overall profit of $100,000, then 3,571 items is needed to be produced

Explanation:

Mathematically;

Profit = Revenue - Production cost

In the question, we are told that the profit we are expecting is $100,000

Let the number of items to be produced for sales be x items

Now let’s look at the production cost ;

The production cost will be number of items for sale * production cost = 15 * x = $15x

Now, we need to add the start-up cost to the production cost to get the total amount spent on production;

Mathematically the total amount would be = $25,000 + $15x

Let’s look at the revenue;

The revenue will be selling price of each item * price of each item;

Mathematically, that would be 50 * x = $50x

So therefore;

50x - (25,000 + 15x) = 100,000

50x -25,000 -15x = 100,000

35x = 100,000 + 25,000

35x = 125,000

x = 125,000/35 = 3571.42 which is approximately 3,571 items