^[22] Best Buy Furniture Store manufactures and sells bedroom suites. Each suite costs $800 and sells for $1,500. Fixed costs total $150,000.

1. Write down the cost equation and the revenue equation.
2. Find the breakeven point in units (number of suites).

 

^[23] A company has determined that a minimum of 25,000 units of their product can be sold at a selling price of $10 per unit. However, if the selling price was reduced to $8.00 per unit, a minimum of 35,000 units could be sold. Relevant cost data for this product is as follows:

1. Determine the breakeven points in units.
2. Determine the profit earned by selling the minimum quantity for each price alternative (i.e., at both $10 and $8).

 

^[24] CK Air has begun a new discount air service to Port Alberni. It costs $2,070 to fly an empty aircraft with crew to Port Alberni. Each passenger costs an extra $12 in food and extra fuel costs. Tickets sell for $150 for a one-way flight.

1. Write down the cost equation and the revenue equation.
2. How many passengers must the plane hold for the company to break even?
3. Calculate the profit if 17 passengers fly to Port Alberni.
4. If the company wants to make a profit of $690 per trip, how many seats must they sell?
5. What is the contribution margin?

 

^[25] Finicky-Cat Gourmet Pet Food makes organic cat food and sells them in 2 kg bags. The company has annual fixed costs of $150,000 and variable costs of $4 per bag. Finicky-Cat sells each bag for $10. Production capacity is 50,000 bags per year.

1. Find the revenue and cost equations.
2. How many bags of cat food does the company have to sell to break even?
   1. What are total sales at the breakeven point?
   2. What is the percent capacity at the breakeven point?
3. The company anticipates that it will be able to make and sell 40,000 bags of cat food this year. What will it cost to produce these 40,000 bags?
4. Graph the cost equation and the revenue equation on graph paper. Graph from 0 to 50,000 bags. Make sure to label the axes.
   1. Clearly identify the breakeven point on the graph.
   2. Identify the area on the graph where the company makes a profit and where it has a loss.
5. Finicky-Cat wants to increase its selling price from the current $10 so that it could make a profit of $150,000 from selling 40,000 bags of cat food. What price must they charge?

 

^[26] It costs Brawn Products $8  to make a particular model of shaver. The fixed costs are $12,000 per month. The shavers are sold to retailers for $25 less trade discounts of 33.5%, 10%.

1. Write down the revenue and cost equations.
2. Compute the breakeven point (in units and in sales dollars).
3. Find the profit if 2,200 shavers are sold in a month.
4. Find the profit if monthly sales (in dollars) are $37,500.
5. Brawn wants to make a profit of $5,000/month. How many shavers must be sold?
6. If the fixed cost increased to $18,000/month, how many shavers must they sell to break even?
7. If the fixed costs remain the same (at $12,000/month) but the selling price is reduced to $10, what would the new breakeven point be?
8. Brawn Products wants to add a third discount to reduce their selling price to $10 (as in part 7). Find the rate of the third discount.
9. The cost to make a shaver has increased by 25% from the current $8 and fixed costs have fallen by 25% from the current $12,000/month. If Brawn wants to make a profit of $20,000/month from the sale of 5,000 shavers, what should the new selling price be?

 

^[27] Your company needs to lease a photocopier. It has a choice between three photocopiers A, B, and C. Copier A charges a flat fee of $3,000 per month. Copier B charges $2,000 per month plus $0.05 per copy; and copier C charges $1,000 per month plus $0.15 per copy.

1. Find the cost equation for each copier.
2. If the requirement is 15,000 copies per month which copier is cheapest?
3. Calculate the points of indifference based on cost (i.e., determine the number of photocopies which will make the costs equal).
   1. between copier A and B
   2. between copier A and C.
   3. between copier B and C.
4. On the same graph, graph the three cost equations over the range 0-30,000 copies.
5. Over what range of values of x (the number of copies) is it most cost-effective (cheapest) to rent from A, B, or C?

 

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