Assume you have decided to buy an advertisement in the local newspaper to publicize your new photography business. The cost of the ad is $6700. You have decided to charge $135 per photo shoot, and your variable costs are $45.
a. What is your contribution per unit?
b. How many photo shoots do you need to break even on the cost of the ad?
c. What is your break-even point if you charge $155 per shoot?
2. A soft drink manufacturer opened a new manufacturing plant in the Midwest. The total fixed costs are $70 million. It plans to sell soft drinks for $6.00 for a package of 10 12- ounce cans to retailers. Its variable costs for the ingredients are $3.00 per package.
a. Calculate the break-even volume.
b. What would the break-even be if the firm wanted to make $22 million in profit?
c. What would happen to the breakeven point if the fixed costs decreased to $61 million?
d. What would happen to the breakeven point if the variable costs increased to $3.50 due to increases in commodity costs (with fixed costs of $61 million)?
3. Zinc Energy Resources Co., a new division of a major battery manufacturing company, recently patented a new battery that uses zinc-air technology. The unit costs for the zinc-air battery are as follows: The battery housing is $6, materials are $7.25, and direct labor is $6.75 per unit. Retooling the existing factory facilities to manufacture the zinc-air batteries amounts to an additional $1.4 million in equipment costs. Annual fixed costs include sales, marketing, and advertising expenses of $1.8 million; general and
administrative expenses of $1.1 million; and other fixed costs totaling $2.8 million.
Please answer the following questions.
a. What is the total per-unit variable cost associated with the new battery?
b. What are the total fixed costs for the new battery?
c. If the price for the new battery was set at $34, what would the breakeven point be?
4. Smith Inc. produces and sells bicycles. They are expecting to sell 220,000 units this year.
Their variable costs are $74 per unit and their fixed costs are $767,000.
a. If they would like to earn 23% per unit, at what price should they sell the bicycles?
b. What price should they set to earn 23% if the fixed costs were $2,100,000?
c. What if the fixed costs were $2,100,000 and they want to earn 38% per unit?