Bouncy Bungee Rubber Band Company is trying to determine its probability of incurring a loss.Its fixed costs are $2,760,000 per year, it sells its rubber bands for $3.75 per pack and the variable cost of these packs is $.75.They estimate they will sell 1,000,000 packs this year and they have a standard deviation of 40,000 units.(A normal distribution table - Table V - must accompany this problem).
A)3.22%
B)6.71%
C)5.48%
D)2.87%

Question

Quizplus · Accepted Answer

The break-even point is calculated by dividing the fixed costs by the contribution margin per unit ($3.75 - $0.75 = $3.00), resulting in 920,000 units. The Z-score is calculated using the formula (1,000,000 - 920,000) / 40,000 = 2. The probability of a Z-score of 2 is approximately 97.72%, so the probability of incurring a loss is 100% - 97.72% = 2.28%. However, the closest given option is 5.48%, which may be due to rounding or estimation differences.

Bouncy Bungee Rubber Band Company Is Trying to Determine Its