Business Mathematics

Question

A clock manufacturer has a has a fixed monthly cost of $100 and a variable production cost of $75 per clock. If each clock is sold for $125, determine the annual profit or loss if the company sells an average of 30 clocks per month

Answer 1

The question wording gives clues on how to solve this: "determine the annual profit or loss"

What is the annual fixed cost? 12*(monthly cost) = $1200 per year

How many clocks sold annually? 12*(30 per month average) = 360 clocks per year

What is the annual variable cost for 360 clocks? $75*360 = $27,000

Those are all the costs. Now, what dollar sales? $125*360 = $45,000

Profit = Income - Costs

Profit = $45,000 - $1200 - $27,000 = $16,800 per year,

(note: A negative profit would mean 'loss').