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VP  Joined: 22 Oct 2006
Posts: 1279
Schools: Chicago Booth '11
The total cost for Company X to produce a batch of tools is  [#permalink]

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Difficulty:   5% (low)

Question Stats: 91% (01:40) correct 9% (02:06) wrong based on 1806 sessions

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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

Originally posted by terp26 on 25 Feb 2007, 21:50.
Last edited by Bunuel on 07 Apr 2012, 13:02, edited 2 times in total.
Edited the question and added the OA
Math Expert V
Joined: 02 Sep 2009
Posts: 60646
Re: The total cost for Company X to produce a batch of tools is  [#permalink]

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12
3
Can someone explain this please? thanks.

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.

Hope it's clear.
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Manager  Joined: 12 Feb 2006
Posts: 99

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I just did it real quickly and got 4.50.

Basically 90,000/20,000.
Manager  Status: Post MBA, working in the area of Development Finance
Joined: 09 Oct 2006
Posts: 110
Location: Africa

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[(8-3)xno. of tools - 10.000]/no of tools is the answer which is
90,000/20,000=4.5
VP  Joined: 22 Oct 2006
Posts: 1279
Schools: Chicago Booth '11

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oh I see what I did wrong, I ended up with 170,000 - 70,000 meaning I incoroprated the 10,000 in the profits, when it was only part of the cost

Thanks
Manager  Joined: 15 Apr 2011
Posts: 58
Re: The total cost for Company X to produce a batch of tools is  [#permalink]

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Can someone explain this please? thanks.
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Math Expert V
Joined: 02 Sep 2009
Posts: 60646
Re: The total cost for Company X  [#permalink]

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sravanth 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

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Intern  Joined: 26 Nov 2011
Posts: 12
Re: The total cost for Company X to produce a batch of tools is  [#permalink]

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1
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
Manager  Joined: 12 Jan 2013
Posts: 141
Re: The total cost for Company X to produce a batch of tools is  [#permalink]

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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

Step 1) Create equations: [10,000 + 3*X = Total Cost] [5*X = Revenue] [Gross Profit = TC - R]

Step 2) Insert the variable: We are given X = 20,000 so Total cost = 70,000, Revenue = 160,000 and Gross Profit = 90,000

Now, the gross profit per tool is exactly what it says, Gross Profit/X ----> 90,000/20,000 ----> 4.5 USD per tool
Manager  Joined: 07 Apr 2014
Posts: 98
Re: The total cost for Company X to produce a batch of tools is  [#permalink]

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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

production cost = 10000 + (3*20000 ) = 70000

selling cost = 20000* 8 = 160000

160000-70000 = 90000/20000 = 4.5
Intern  Joined: 09 Sep 2014
Posts: 6
Re: The total cost for Company X to produce a batch of tools is  [#permalink]

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. Target Test Prep Representative V Status: Founder & CEO Affiliations: Target Test Prep Joined: 14 Oct 2015 Posts: 9143 Location: United States (CA) Re: The total cost for Company X to produce a batch of tools is [#permalink] ### Show Tags 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 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. _________________ # Scott Woodbury-Stewart Founder and CEO Scott@TargetTestPrep.com See why Target Test Prep is the top rated GMAT quant course on GMAT Club. Read Our Reviews If you find one of my posts helpful, please take a moment to click on the "Kudos" button. Manager  Joined: 20 Mar 2015 Posts: 54 The total cost for Company X to produce a batch of tools is [#permalink] ### Show Tags 1 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)

5*20,000 = $100,000$100,000-$10,000(FC) =$90,000(Gross profit.)

Gross profit/tool = $90,000/20,000 = 4.5 C. Intern  B Joined: 29 Sep 2016 Posts: 7 Re: The total cost for Company X to produce a batch of tools is [#permalink] ### Show Tags 2 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.

Voila! We have $8.00 - ($3.00 + $0.50) =$4.50
Manager  G
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Re: The total cost for Company X to produce a batch of tools is  [#permalink]

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Here's how this can be solved as well - If you prefer Algebra

Let n = Number of tools sold

Cost Price = 10,000 + 3n
Revenue = 8n
Gross profit = 8n - (10,000+3n) = 5n - 10,000

Gross Profit per tool = $$\frac{(5n-10,000)}{n}$$ = $$5 - \frac{10,000}{n}$$

Plugging in given

Profit per tool = $$5 - \frac{10,000}{20,000} = 5 - \frac{1}{2} = 4.5$$

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

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

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Since they have asked profit/unit, let us stick to that exactly and avoid big numbers.
Cost of production is 10,000 + 3$/unit 20,000 are produced and hence we can take cost of production as 10,000/20,000 + 3$/unit = 0.5 + 3 = 3.5$/ unit Selling price is 8$ /unit
Hence profit = 8-3.5 = 4.5$/unit Intern  Joined: 25 Sep 2017 Posts: 3 Re: The total cost for Company X to produce a batch of tools is [#permalink] ### Show Tags Before jumping into the algebra, think. On questions such as this you can get to one possible answer by excluding the impossible. Doing less algebra saves you time and increases your accuracy. Without the fixed cost of$10,000, the profit would be $5 a unit. Of course, with the fixed cost the profit will be less. So, eliminate answers D and E. If you spread the fixed cost over a run of 10,000 units, the fixed cost would work out to$1 a unit, lowering the profit to $4 a unit. The run of 20,000 will reduce the fixed cost allocated to each unit, so the profit per unit must be greater than$4. Eliminate A and B.

Only C is possible.

Think before you algebra.
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Re: The total cost for Company X to produce a batch of tools is  [#permalink]

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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

Per unit sale =8
Per unit cost =3+10000/20000=3.5
So, profit per unit=8-3.5=4.5

Posted from my mobile device
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Re: The total cost for Company X to produce a batch of tools is  [#permalink]

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Profit = Rev - Cost, we are asked P/n tools = ?
Easiest for me is to plug in and factor power of 10

$$P = (8*2*10^{4}) - (10^{4} + 3*2*10^{4})$$

$$P = 10^{4}*[(8*2*1) - (1 + 3*2*1)]$$

$$P = 10^{4}*[(16) - (7)]$$

$$P = 10^{4}*$$

$$\frac{10^{4}*}{2*10^{4}} = 4.5$$ Re: The total cost for Company X to produce a batch of tools is   [#permalink] 08 Oct 2019, 09:58
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