Part Two 65 Points 8. Bazooka Company is thinking about introducing a new type o
ID: 430660 • Letter: P
Question
Part Two 65 Points 8. Bazooka Company is thinking about introducing a new type of color printer. If they introduce it, their factory will incur additional fixed costs of $37,000,000 per year. The variable costs will be S261 per printer a. If Bazooka sells the new printer for $819, how many must they sell to break even? b. If Bazooka sells 70,000 of the new printer at the $819 price, what will the contribution to profit be? 9. Sam Smear owns a manufacturing company that makes ball point pens. Currently he is trying to decide between two processes for making the pens. The first process will have a fixed cost of $200,000 per year and variable costs of S0.40 per pen. The second process will have a fixed cost of S250,000 per year and variable costs of $0.30 per pen. a. Identify which ranges of product volume are best for each process b. If Sam makes 200,000 pens, which process provides a lower cost? 10. Will's omelet factory produces 2,500 omelets a day. They've determined that their daily fixed costs are $4,000 with a variable cost of fifteen cents per omelet. a. (a) What is the total cost to make a day's omelets, and b. (b) what should Will charge for each omelet to make a 10% profit, rounded to the next whole dollar? 11. Simuelson Industries can produce its own motors for a S60,000 fixed monthly cost and a $50 variable cost per unit. Alternatively, Simuelson Industries can purchase the motors from an outside supplier for S50,000 per month and $58 per unit a. What is the indifference point? b. What option should be chosen if monthly demand is 1200 units?Explanation / Answer
8.
A.
Breakeven quantity = Fixed cost/(price per unit – variable cost per unit)
Breakeven quantity = 37000000/(819-261)
Breakeven quantity = 66308.24 units or 66308 units
B.
If 70000 units are sold:
Then,
Profit = 70000*(Price per unit – VC per unit) – fixed cost
Profit = 70000*(819-261) – 37000000
Profit = $2060000
So, contribution to profit will be $2060000.
9.
A.
Let, X = volume of pen to make the indifference point between these two alternatives
Total cost of alternative 1 = Total cost of alternative 2
200000 + X*.4 = 250000 + X*.3
X = 50000/.1 = 500000 units of pen
So, up to the 500000 units of production of pen, first process with $20000 will be suitable, and for more than 500000 volume of pens, the second process with $250000 fixed cost will be suitable.
B.
Lower cost will be provided by the first process, since the volume is less than the indifference point of 500000 units.
At 200000 units
Total Cost in first process = 200000 + .4*200000 = $280000
Total Cost in second process = 250000 + .3*200000 = $310000
So, first process will make lower cost for the given volume of 200000.
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