Sage Smithe is planning to make a unique toy that promises to keep small children entertained for hours. Sage believes that parents everywhere will want to buy this toy. With a selling price of $40, Sage now needs to determine the costs and the required number of toys needed to be sold before earning a profit, the break-even point.
After researching the costs to produce the toy, the following two locations with associated costs have been determined:
· The rent for the small facility will be $2,500 per month, insurance $880 per month, and other fixed costs are estimated at $3,100 per month. This facility has a capacity to produce 100 toys per month at a variable cost for each toy of $4.00.
· The rent for a larger facility will be $6,000 per month, insurance $1,000 per month, and other fixed costs are estimated at $3,800 per month. This facility has a capacity to produce 400 toys per month at a variable cost for each toy of $4.00.