7. EB Company sells a large pack of "Cutie" diapers for $20. One pack of diapers requires two pounds of raw material and one hour of direct labor for manufacture. Raw material costs $3 per pound and direct production labor is paid $4 per hour. Fixed supervisory costs are $2,000 per month and EB rents its factory for $4,000 per month. How many packs of diapers should EB sell every month to break even? a. 500. b. 400. c. 600. d. 800.

Question

Business

Emerson Yates

14 November, 14:08

7. EB Company sells a large pack of "Cutie" diapers for $20. One pack of diapers requires two pounds of raw material and one hour of direct labor for manufacture. Raw material costs $3 per pound and direct production labor is paid $4 per hour. Fixed supervisory costs are $2,000 per month and EB rents its factory for $4,000 per month. How many packs of diapers should EB sell every month to break even? a. 500. b. 400. c. 600. d. 800.

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Answers (1)

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Rafael Cole · Answer 1

c. 600

Explanation:

One pack of diapers requires two pounds of raw material and one hour of direct labor for manufacture. Since Raw material costs $3 per pound and direct production labor is paid $4 per hour.

Therefore the cost of producing one pack of diaper = 2 pounds ($3 per pound) + 1 hr ($4 per hour) = $6 + $4 = $10

Since Fixed supervisory costs are $2,000 per month and EB rents its factory for $4,000 per month, the total expense for x diapers per month is given as:

Expense = $2000 + $4000 + $10x = $10x + $6000

The revenue generated by selling x diapers per month since one pack is sold at $20 is given as:

Revenue = $20x

At break even, Revenue = Expense

Therefore: $10x + $6000 = $20x

20x - 10x = 6000

10x = 6000

x = 6000/10 = 600

EB would need to sell 600 diapers to break even