The Retread Tire Company recaps tires. The fixed annual cost of the recapping operation is $60,000. The variable cost of recapping a tire is $9. The company charges $25 to recap a tire. a. For an annual volume of 12,000 tires, determine the total cost, total revenue, and profit.
b. Determine the annual break-even volume for the Retread Tire Company operation.

See below

Explanation:

A.

• Total cost

The total cost for recapping the tires is the addition of fixed cost and the variable cost

= ($60,000 fixed) + (12,000 × $9)

= $60,000 + $108,000

= $168,000

• Total revenue

Revenue from 1 tire = $25

Total tires recapped = 12,000

Therefore, total revenue

= 12,000 × $25

= $300,000

• Total profit

Total profit = Total revenue - Cost

Given that;

Total revenue = $300,000

Total cost = $168,000

Total profit = $300,000 - $168,000

Total profit = $132,000

B.

• Break even point.

This is the point, where the revenue and the cost incurred by the company equals. We can make the break even point occur at y-tires.

Cost of recapping y tires = Revenue from y tires

60,000 + 9y = $25

60,000 = 25y - 9y

60,000 = 16y

y = 3,750 litres

It means that on recapping 3,750 tires, the cost will be equal to the revenue generating 0 profit , which is the break even point.

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