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    Manegement Science Mod 1 M1L2

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    Cher Na
    The Willow Furniture Company produces tables with a fixed monthly cost of $8,000 and a variable cost of $65 per table. Tables sell for $180 each. For a monthly production of 300 tables, total cost is $27,500, total revenue is $54,000, and profit is $26,500. The monthly break-even volume is 70 tables. The Retread Tire Company recaps tires with a fixed annual cost of $60,000 and a variable cost of $9 per tire. Tires are sold for $25 each. For 12,000 tires annually, total cost is $168,000, revenue is $300,000, and profit is $132,000.

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    Manegement Science Mod 1 M1L2

    Uploaded by

    Cher Na
    4K views8 pages
    The Willow Furniture Company produces tables with a fixed monthly cost of $8,000 and a variable cost of $65 per table. Tables sell for $180 each. For a monthly production of 300 tables, total cost is $27,500, total revenue is $54,000, and profit is $26,500. The monthly break-even volume is 70 tables. The Retread Tire Company recaps tires with a fixed annual cost of $60,000 and a variable cost of $9 per tire. Tires are sold for $25 each. For 12,000 tires annually, total cost is $168,000, revenue is $300,000, and profit is $132,000.

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    MANEGEMENT-SCIENCE-MOD-1-M1L2 (4)

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    The Willow Furniture Company produces tables with a fixed monthly cost of $8,000 and a variable cost of $65 per table. Tables sell for $180 each. For a monthly production of 300 tables, total cost is $27,500, total revenue is $54,000, and profit is $26,500. The monthly break-even volume is 70 tables. The Retread Tire Company recaps tires with a fixed annual cost of $60,000 and a variable cost of $9 per tire. Tires are sold for $25 each. For 12,000 tires annually, total cost is $168,000, revenue is $300,000, and profit is $132,000.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    4K views8 pages

    Manegement Science Mod 1 M1L2

    Uploaded by

    Cher Na
    The Willow Furniture Company produces tables with a fixed monthly cost of $8,000 and a variable cost of $65 per table. Tables sell for $180 each. For a monthly production of 300 tables, total cost is $27,500, total revenue is $54,000, and profit is $26,500. The monthly break-even volume is 70 tables. The Retread Tire Company recaps tires with a fixed annual cost of $60,000 and a variable cost of $9 per tire. Tires are sold for $25 each. For 12,000 tires annually, total cost is $168,000, revenue is $300,000, and profit is $132,000.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 8
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    The documents discuss how to calculate total cost, total revenue, profit, and break even volume/point for different companies.

    Break even volume is calculated by setting total revenue equal to total costs and solving for the number of items. It is the volume where profits are zero.

    The annual break even volume for the Retread Tire Company is 3,750 tires.

    The Willow Furniture Company produces tables.

    The fixed monthly cost of production is $8,000,


    and the variable cost per table is $65. The tables sell for $180 apiece.

    a. For a monthly volume of 300 tables, determine the total cost, total revenue, and profit.
    Total Cost = Fixed cost + (variable cost) (Number of tables)
    Total Cost = 8000 + (65) (300) = 27,500
    Total Revenue = (Item price) (Number of items)
    Total Revenue = (180) (300) = 54,000
    Total Profit = Total Revenue – Total cost
    Total Profit = 54000 – 27500 = 26,500

    b. Determine the monthly break-even volume for the Willow Furniture Company.
    Let no. of items = x
    Total Profit = 0 (to find the break even point)
    Total Profit = (number of items) (item price) -〔( fixed cost) + (variable cost per item) ( No. of
    items )〕
    0 = 180 x – (8000 + 65 x)
    = 115 x – 8000 = 0
    = 115x = 8000
    = x = 8000 / 115
    BEV=FC/SP-VC = 8000/(180-65) = 69.56 Tables
    Monthly break even volume = 70
    The Retread Tire Company recaps tires.
    The fixed annual cost of the recapping operation is $60,000.
    The variable cost of recapping a tire is $9.
    The company charges $25 to recap a tire.

    a. For an annual volume of 12,000 tires, determine the total cost, total revenue, and profit.
    *Total Cost= 60000 ( 9 x 12,000)
    Total Cost = 60000 + 108 000
    Total Cost = 168000

    Total Revenue = 25 (12000)


    Total Revenue = 300 000

    Total Profit = 300000 – 168 000


    Total Profit = 132 000

    b. Determine the annual break-even volume for the Retread Tire Company operation.

    This is the point, where the revenue and the cost incurred by the company
    equals. We can make the break even point occur at y-tires.
    Cost of recapping y tires = Revenue from y tires
    60,000 + 9y = $25
    60,000 = 25y - 9y
    60,000 = 16y
    y = 3,750 litres
    It means that on recapping 3,750 tires, the cost will be equal to the revenue
    generating 0 profit , which is the break even point.
    c. Graphically illustrate the break-even volume for the Retread Tire Company
    Andy Mendoza makes handcrafted dolls, which he sells at craft fairs. He is considering mass
    producing the dolls to sell in stores. He estimates that the initial investment for plant and
    equipment will be $25,000, whereas labor, material, packaging, and shipping will be about $10
    per doll. If the dolls are sold for $30 each, what sales volume is necessary for Andy to break
    even?  Sales volume of 1250 is needed to break even
    Scenario 1- Fixed cost = $25000 Variable cost= $10 Price = $30

    To breakevem $30x = $10x + 25000 where x is number of dolls sol

    20x = 25000 . X = 1250 units


    Andy Mendoza in Problem 3 is concerned that the demand for his dolls will not exceed the
    break-even point. He believes he can reduce his initial investment by purchasing used sewing
    machines and fewer machines. This will reduce his initial investment from $25,000 to $17,000.
    However, it will also require his employees to work more slowly and perform more operations
    by hand, thus increasing variable cost from $10 to $14 per doll. Will these changes reduce his
    break-even point?
    Scenario 2

    Fixed cost = $17000 VC=$14 Price =$30

    To breakeven 30x = 14x + 17000

    16x= 17000

    x = 1062.5

    Decrease

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