A manufacturing company produces two types of phones. Each phone sells for $350 and costs $150. The company incurs a fixed cost of $20000 per day to lease their machines to manufacture the phones.

Question 3. (9 points) COST-VOLUME-PROFIT MODEL

A manufacturing company produces two types of phones. Each phone sells for $350 and costs $150. The company incurs a fixed cost of $20000 per day to lease their machines to manufacture the phones. Depending on the volume of production the company must also hire and schedule enough number of employees to carry out the production. The additional labor costs are $1000, $2200 and $3500 per day, when the production volume is 0 to 100 units, 0 to 150 units, and 0 to 200 units per day, respectively. The company forecasts the daily expected demand for its phones to be 160 units.

a) (3 points) Compute the break-even point for each range of production volume separately.

b) (4 points) Which production volume range is the best for the company? Explain clearly why.

c) (2 points) Suppose the company has a production capacity of 100 units per day. (Use this information independent of the production volumes mentioned above). What is the capacity cushion (in %) if the company produces only as much as the forecasted demand? What is the implied capacity utilization (i.e., the capacity utilization when the company chooses to produce only as much as the demand)?