Bentley Plastics Ltd. has annual fixed costs of $450,000 and variable costs of $15 per unit. The selling price per unit is $25.
What will be the annual net income at annual sales of:
50,000 units?
$1,000,000?
net income is revenue-costs
for n units, that is
25n - (450000+15n)
= 40n - 450000
extra credit: how many units must they sell before they start making money?
Did I really say that? How about
10n - 450000
dang!
To calculate the annual net income at different levels of sales, we need to use the formula:
Net Income = (Selling Price per Unit * Number of Units) - (Fixed Costs + Variable Costs per Unit * Number of Units)
Let's calculate the net income for each case:
1. Annual sales of 50,000 units:
Net Income = ($25 * 50,000) - ($450,000 + $15 * 50,000)
= $1,250,000 - $450,000 - $750,000
= $1,250,000 - $1,200,000
= $50,000
Therefore, the annual net income at sales of 50,000 units will be $50,000.
2. Annual sales of $1,000,000:
To find the number of units sold, we divide the total sales by the selling price per unit:
Number of Units = $1,000,000 / $25
= 40,000 units
Net Income = ($25 * 40,000) - ($450,000 + $15 * 40,000)
= $1,000,000 - ($450,000 + $600,000)
= $1,000,000 - $1,050,000
= -$50,000
Therefore, the annual net income at sales of $1,000,000 will be -$50,000 (a loss of $50,000).
To calculate the annual net income, we need to subtract the total costs from the total revenue. The total costs consist of both fixed costs and variable costs.
To find the total variable costs, we multiply the variable cost per unit by the number of units sold. In this case, the variable cost per unit is $15.
Let's calculate the net income for each given scenario:
1. 50,000 units:
- Total variable costs = Variable cost per unit * Number of units sold = $15 * 50,000 = $750,000
- Total costs = Fixed costs + Total variable costs = $450,000 + $750,000 = $1,200,000
- Total revenue = Selling price per unit * Number of units sold = $25 * 50,000 = $1,250,000
- Net income = Total revenue - Total costs = $1,250,000 - $1,200,000 = $50,000
Therefore, the annual net income at annual sales of 50,000 units is $50,000.
2. $1,000,000:
- Number of units sold = Total revenue / Selling price per unit = $1,000,000 / $25 = 40,000 units
- Total variable costs = Variable cost per unit * Number of units sold = $15 * 40,000 = $600,000
- Total costs = Fixed costs + Total variable costs = $450,000 + $600,000 = $1,050,000
- Net income = Total revenue - Total costs = $1,000,000 - $1,050,000 = -$50,000
Therefore, at sales of $1,000,000, the company would have a net loss of $50,000.
Please note that in the second scenario, the company is experiencing a loss due to the higher costs compared to the revenue.