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Vandelay Industries manufactures a range of latex products. Vandelay recently purchased new equipment to manufacture latex gloves for the medical community. The new machinery leases for $70,000 annually and can produce 10,000 pairs of gloves each day. The raw latex material for each pair of gloves costs $.03 and Vandelay sells the gloves at a wholesale price of $.10 a pair. Currently, sales are 2,500,000 annually. What is the profit on the gloves if the machinery lease is the only fixed cost considered?

a. $250,000
b. $175,000
c. $105,000
d. $75,000

Respuesta :

ahmedgodtrust

Answer:

                                                                       $

        Sales (2,500,000  x$0.10)             250,000

Less: Material cost(2,500,000 x $0.03) 75,000

        Annual lease rental                         70,000

        Profit                                                 105,000

Explanation:

Profit equals annual sales minus material cost minus annual lease rental. Since the annual sales volume are 2,500,000 gloves at a price of $0.10 per pair, the total sales value will be $250,000. Material costs $0.03 per pair, thus, the total material cost will be $0.03 x 2500,000 pairs. Annual lease rental of $70,000 is treated as a fixed cost.

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