Indira Industries is a major producer of diverter dampers used in the gas turbine power industry to divert gas exhausts from the turbine to a side stack, thus reducing the noise to acceptable levels for human environments. Normal production level is 60 diverter systems per month, but due to significantly improved economic conditions in Asia, production is at 72 per month. The following information is available.
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Fixed costs
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FC= $2.4 million per month
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Variable cost per unit
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v = $35,000
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Revenue per unit
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r = $75,000
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(a) How does the increased production level of 72 units per month compare with the current breakeven point?
(b) What is the current profit level per month for the facility?
(c) What is the difference between the revenue and variable cost per damper that is necessary to break even at a significantly reduced monthly production level of 45 units, if fixed costs remain constant?