Problem 1) William started his own business which manufactures shirts for special occasions. He has just begun this business and rents space and equipment from a local fabric maker when necessary. The cost of using the equipment and paying for the worker costs $460 per month and renting the space is $890 per month. The materials used for each shirt costs $10 and he can sell the shirts for $28 each.
If he sells 50 shirts in one month what is his total revenue?
How much profit will he make in one month if he sells 50 shirts?
If he sells 90 shirts in one month what is his variable costs? His fixed costs?
If he sells 90 shirts in one month, how much profit did he make?
How many shirts must he sell in one month to breakeven?
How would the breakeven relationship look like in a graph?
Problem 2) If the breakeven quantity is 50 widgets and the fixed expenses are $ 5,000 what is the unit-selling price and unit variable cost, if the unit-selling price is five times the unit variable cost?
Problem 3) There are two ways to produce light fixtures; each has a different cost structure, though they could be sold for the same price:
Process A Process B
Unit sales price $3.00 Unit sales price $3.00
Unit variable cost $1.50 Unit variable cost $ 1.00
Fixed cost $3,000 Fixed cost $5,000
a) What is the break-even volume (i.e. how many light fixtures must be sold to break even) for process A?
b) If 2,200 light fixtures were sold, what would the profit be if you used process A? Process B?
c) Which process would you choose to use if you knew with certainty that you would sell 2,000 light fixtures? If you knew for certainty that you would sell 2,500 light fixtures?
d) How would a break-even graph for A and B look like?