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The total cost for Company X to produce a batch of tools is [#permalink]

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25 Feb 2007, 21:50

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The total cost for Company X to produce a batch of tools is $10,000 plus $3 per tool. Each tool sells for $8. The gross profit earned from producing and selling these tools is the total income from sales minus the total production cost. If a batch of 20,000 tools is produced and sold, then Company X’s gross profit per tool is

(A) $3.00 (B) $3.75 (C) $4.50 (D) $5.00 (E) $5.50

I keep getting an answer different from OA, and I know I must be missing something simple

The total cost for Company X to produce a batch of tools is $10,000 plus $3 per tool. Each tool sells for $8. The gross profit earned from producing and selling these tools is the total income from sales minus the total production cost. If a batch of 20,000 tools is produced and sold, then Company X’s gross profit per tool is

(A) $3.00 (B) $3.75 (C) $4.50 (D) $5.00 (E) $5.50

The total production cost of 20,000 tools is $10,000 + $3*20,000 = $70,000; The total income from sales of 20,000 tools is $8*20,000 = $160,000;

The gross profit earned is $160,000 - $70,000 = $90,000; The gross profit per tool is $90,000/20,000 = $4.50.

The total cost for Company X to produce a batch of tools is $10,000 plus $3 per tool. Each tool sells for $8. The gross profit earned from producing and selling these tools is the total income from sales minus the total production cost. If a batch of 20,000 tools is produced and sold, then Company X’s gross profit per tool is

(A) $3.00 (B) $3.75 (C) $4.50 (D) $5.00 (E) $5.50

Merging similar topics. Please ask if anything remains unclear.
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Re: The total cost for Company X to produce a batch of tools is [#permalink]

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21 Jun 2012, 01:53

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This post received KUDOS

TC = 10,000 + 3x

TR = 8x

Profit = 8x - 10000 - 3x = 5x - 10000

when x = 20000, Profit = 90000

Profit per x = 90000/20000 = 4.5

terp26 wrote:

The total cost for Company X to produce a batch of tools is $10,000 plus $3 per tool. Each tool sells for $8. The gross profit earned from producing and selling these tools is the total income from sales minus the total production cost. If a batch of 20,000 tools is produced and sold, then Company X’s gross profit per tool is

(A) $3.00 (B) $3.75 (C) $4.50 (D) $5.00 (E) $5.50

I keep getting an answer different from OA, and I know I must be missing something simple

Re: The total cost for Company X to produce a batch of tools is [#permalink]

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10 Jan 2014, 01:46

Hello from the GMAT Club BumpBot!

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Re: The total cost for Company X to produce a batch of tools is [#permalink]

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10 Jan 2014, 01:50

terp26 wrote:

The total cost for Company X to produce a batch of tools is $10,000 plus $3 per tool. Each tool sells for $8. The gross profit earned from producing and selling these tools is the total income from sales minus the total production cost. If a batch of 20,000 tools is produced and sold, then Company X’s gross profit per tool is

(A) $3.00 (B) $3.75 (C) $4.50 (D) $5.00 (E) $5.50

I keep getting an answer different from OA, and I know I must be missing something simple

Re: The total cost for Company X to produce a batch of tools is [#permalink]

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11 Sep 2014, 06:43

terp26 wrote:

The total cost for Company X to produce a batch of tools is $10,000 plus $3 per tool. Each tool sells for $8. The gross profit earned from producing and selling these tools is the total income from sales minus the total production cost. If a batch of 20,000 tools is produced and sold, then Company X’s gross profit per tool is

(A) $3.00 (B) $3.75 (C) $4.50 (D) $5.00 (E) $5.50

I keep getting an answer different from OA, and I know I must be missing something simple

Re: The total cost for Company X to produce a batch of tools is [#permalink]

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11 Sep 2014, 08:02

This problem is simple but was hard for me at first. The way I ended up with a solution was seeing that each tool made $5 each and the 10,000 cost of production spread over 20,000 tools meant each tool had an additional cost of .50 making individual profit 4.50 per tool.

Re: The total cost for Company X to produce a batch of tools is [#permalink]

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21 Dec 2015, 12:45

Hello from the GMAT Club BumpBot!

Thanks to another GMAT Club member, I have just discovered this valuable topic, yet it had no discussion for over a year. I am now bumping it up - doing my job. I think you may find it valuable (esp those replies with Kudos).

Want to see all other topics I dig out? Follow me (click follow button on profile). You will receive a summary of all topics I bump in your profile area as well as via email.
_________________

The total cost for Company X to produce a batch of tools is $10,000 plus $3 per tool. Each tool sells for $8. The gross profit earned from producing and selling these tools is the total income from sales minus the total production cost. If a batch of 20,000 tools is produced and sold, then Company X’s gross profit per tool is

(A) $3.00 (B) $3.75 (C) $4.50 (D) $5.00 (E) $5.50

The problem first asks us to calculate the gross profit. The profit equation is as follows:

Profit = Revenue – Cost

In this particular case, we are given VARIABLE REVENUE and VARIABLE COST. This means that Company X makes a certain amount of revenue PER TOOL and has a certain cost PER TOOL. We also are given a FIXED COST. This is a cost that is constant and will not change. Thus we need to take into account the quantity of tools being produced and sold as well as the fixed cost. We can now generate a more detailed profit equation:

Profit = (number of tools sold)(revenue per tool) – [fixed cost + (number of tools made)(cost per tool)]

We are given the following:

fixed cost = $10,000

cost per tool = $3

revenue per tool = $8

Number of tools produced and sold = 20,000

We can now plug all this into our profit equation:

Profit = (number of tools sold)(revenue per tool) – [fixed cost + (number of tools made)(cost per tool)]

P = 20,000 x 8 – [10,000 + (3 x 20,000)]

P = 20,000 x 8 – [10,000 + (3 x 20,000)]

P = 160,000 – [10,000 + 60,000]

P = 160,000 – 70,000

P = 90,000

We have a profit of $90,000 for selling 20,000 tools, but remember that we need to determine the profit PER TOOL. To calculate this, we divide the total profit of $90,000 by the number of tools produced, which is 20,000. We have:

$90,000/20,000 = $9/2 = $4.50

Answer C.
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The total cost for Company X to produce a batch of tools is [#permalink]

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28 Jun 2016, 23:28

terp26 wrote:

The total cost for Company X to produce a batch of tools is $10,000 plus $3 per tool. Each tool sells for $8. The gross profit earned from producing and selling these tools is the total income from sales minus the total production cost. If a batch of 20,000 tools is produced and sold, then Company X’s gross profit per tool is

(A) $3.00 (B) $3.75 (C) $4.50 (D) $5.00 (E) $5.50

Fixed cost = $10,000 Selling price is $8/tool and production cost is $3/tool. $(8-3) = $5(Profit)

Re: The total cost for Company X to produce a batch of tools is [#permalink]

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15 Nov 2016, 15:55

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We are trying to find out the profit per tool. Lets do this withou having to do a lot of math. Here is a simple way, we only divide once and the rest is given on the statement.

The statement tells us the selling of each tool $8.00 now we need to get the cost. We already know that each tool has a fixed cost of $3.00 and each batch is $10,000.

The only thing we actually need to do here is take allocate the $10,000 to each tool and then add it to the $3.00 cost per tool stated.

Lets divided the cost of the batch per tool: 20,000/ $10,000 = $0.50 per tool.

Re: The total cost for Company X to produce a batch of tools is [#permalink]

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19 Sep 2017, 23:24

another method, for each tool making profit of $8 -$3 =$5(excluded with the initial cost of $10000) for initial investment each tool cost is distributed with 10000/20000 = $0.5 so total profit = $5-$0.5 = $4.5
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