Problem:

Joe Jenkins, owner of Jenkins Manufacturing, is considering whether to produce a new product. He has considered the operations requirements for the product as well as the market potential. Joe estimates that the fixed costs per year to be $40,000 and the variable costs for each unit produced to be $50.

Required:

Question 1) If Joe sells the product at a price of $70, how many units must he sell to break even?

Question 2) If Joe sells 3000 units at the product price of $70, what will be his contributions to profit?

Question 3) Joe has decided to produce the product described above. The product can be produced with the current equipment, but Joe is considering purchasing new equipment that would produce the product more efficiently. Joe's fixed costs would be raised to $60,000 per year, but the variable cost would be reduced to $25 per unit. Joe still plans to sell the product at $70 per unit. Should Joe produce the new product with the new or current equipment? Specify the volume of demand for which you would choose each process.

Solve the given numerical problem and illustrate step by step calculation.