1. The owner of a carwash incurs a total fixed cost of $4200. A full-service car wash is priced at $10.50. Unit variable costs for the carwash are $7.50. How many car washes does the carwash have to sell to break-even?
2. Tim Marlow, the owner of The Clock Works, wanted to know how many clocks he must sell in order to cover his fixed cost at a given price. Tim knew that he had a fixed cost of $20,000 for equipment, taxes, and a bank loan. He also had a unit variable cost of $20 per clock for labor, materials, and promotional costs. If the price Tim charges for each of his clocks is $40, what is his break-even point quantity?
3. Ace Shoe Company sells heel replacement kits for men's shoes. It has fixed costs of $6 million and unit variable costs of $5 per pair. Ace would like to earn a profit of $2 million; how many pairs must they sell at a price of $15?
4. Ace Shoe Company sells heel replacement kits for men's shoes. It has fixed costs of $5 million and unit variable costs of $5 per pair. Suppose a consultant tells Ace it can sell 750,000 heel repair kits, what price must it charge to achieve a profit of $2.5 million?
5. The Precision Writing Instruments Company makes two pen designs—the Cordova design and the Savannah design. These data apply, regardless of which of two pen designs is being implemented.
Materials cost per pen is $6.
Labor cost per pen is $5.
Production overhead is $1,000,000.
Advertising and promotion is $1,000,000.
Marketing research has estimated the following demand functions for the next year of sales for the two pen designs where Q represents demand in thousands and P represents price. For the Cordova design, Q = 150 - 2.5P. For the Savannah design, Q = 175 - 2.1P. What are the total costs for sales of 500,000 units of the Cordova design?
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