Last year, a toy manufacturer introduced a new toy truck that was a huge success. The company invested $4.50 million in a plastic injection molding machine (which can be sold for $4 million immediately) and $300,000 in plastic injection molds specifically for the toy (not valuable to anyone else). The cost of labor and materials necessary to make each truck runs about $4. This year, a competitor has developed a similar toy, significantly reducing demand for the toy truck. Now, the original manufacturer is deciding whether it should continue production of the toy truck. If the estimated demand is 100,000 trucks, the break-even price is $ per truck.

Question

Business

Harley Neal

21 July, 18:21

Last year, a toy manufacturer introduced a new toy truck that was a huge success. The company invested $4.50 million in a plastic injection molding machine (which can be sold for $4 million immediately) and $300,000 in plastic injection molds specifically for the toy (not valuable to anyone else). The cost of labor and materials necessary to make each truck runs about $4. This year, a competitor has developed a similar toy, significantly reducing demand for the toy truck. Now, the original manufacturer is deciding whether it should continue production of the toy truck. If the estimated demand is 100,000 trucks, the break-even price is $ per truck.

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Answers (1)

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Gerardo Hobbs · Answer 1

Break-even price = $7

Explanation:

The break-even price is the price at which the the total contribution from the sale is equal to the fixed cost of $300,000.

(x - 4) * 100,000 = 300,000

100,000X - 400,000 = 300,000

100,000X = 300,000 + 400,000

x = 700,000/100,000

X = $7

Break-even price = $7