Berkeley Company Currently Has Idle Plant Capacity and Wishes to Make

question 61

Multiple Choice

Berkeley Company currently has idle plant capacity and wishes to make as large a profit as possible. It could use some of its facilities to produce 5 000 units of a new product that could be sold through its existing sales network. The new product would have the following estimated costs.
$$\begin{array} { l c } & \text { Per unit } \\\text { Materials } & \$ 6 \\\text { Labour } & \$ 12 \\\text { Variable factory overhead } & \$ 5 \\\text { Variable selling \& administrative costs } & \$ 3\end{array}$$
Assume the fixed factory overhead for the plant is $8 000 per month and the fixed selling and administrative costs are $1800 per month. What is the minimum price per unit that Berkeley could charge for this product without reducing overall profits?

• A) $18
• B) $21
• C) $26
• D) $20

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Definitions:

Oligopoly

A market configuration where the market is dominated by a few firms, resulting in restricted competition.

Soft Drink

A non-alcoholic beverage typically containing carbonated water, a sweetener, and natural or artificial flavoring.

Automobile Industries

Industries involved in the design, development, manufacturing, marketing, and selling of motor vehicles.