Question 1

Use the following to answer the questions below.
A company must decide if it will make or buy an item it needs.The company can make the item for $10 per unit,but must invest $15,000 in tooling to do so.An outside firm has quoted a total price of $12 per unit to supply the quantity required (assume their fixed costs are included in the quoted price).
-Refer to the instruction above.What is the break-even quantity in this situation?

Accepted Answer

To find the break-even quantity, we need to set the cost of making the item equal to the cost of buying it:
10Q + 15,000 = 12Q
15,000 = 2Q
Q = 7,500 units
Therefore, the break-even quantity is 7,500 units.
The best choice is to buy the item from the outside firm, as the cost per unit is lower than making it in-house.

Question 2

Use the following to answer the questions below.
Luvmatics plans to produce a new product.Three different models are planned: the Regular,Large,and Jumbo.The fixed costs depend on which of two locations are used;in San Francisco the fixed costs would be $2.5 million per year,but in Tuttle the fixed costs would be $1.2 million.Sale prices and variable costs for the three models are shown in the table.  Table A.1
-Use the information in Table A.1.What is the slope of the fixed-cost line for production in San Francisco?

Accepted Answer

The slope of a fixed-cost line is 0 because fixed costs do not change with the level of production.

Question 3

A new product will sell in the market for $12.It costs $7 (unit variable cost)to manufacture on a new lathe machine.If the break-even quantity is 10,000 units,what is the annual fixed cost involved in acquiring the machine and in paying other fixed costs?

Accepted Answer

The answer of A new product will sell in the...

Question 4

Use the following to answer the questions below.
A company must decide if it will make or buy an item it needs.The company can make the item for $10 per unit,but must invest $15,000 in tooling to do so.An outside firm has quoted a total price of $12 per unit to supply the quantity required (assume their fixed costs are included in the quoted price).
-Refer to the instruction above.Which alternative should be selected if annual requirements are 5,000 units?

Accepted Answer

To determine the best choice, we need to calculate the total cost for each option. 
- Make: 
Total cost = (Cost per unit x Annual requirements) + Fixed costs 
Total cost = ($10 x 5,000) + $15,000 
Total cost = $65,000

- Buy: 
Total cost = Cost per unit x Annual requirements 
Total cost = $12 x 5,000 
Total cost = $60,000

Since the total cost to buy is less than the total cost to make, the best choice is to buy the item from the outside firm. Therefore, the answer is choice B.

Question 5

A new product is being considered that will require $45,000 in fixed costs per year.Variable costs per unit are estimated to be $12.72.The firm wants to break even if 8000 units are produced and sold per year.What should be the price?

Accepted Answer

The answer of A new product is being considered that...

Question 6

Use the following to answer the questions below.
Luvmatics plans to produce a new product.Three different models are planned: the Regular,Large,and Jumbo.The fixed costs depend on which of two locations are used;in San Francisco the fixed costs would be $2.5 million per year,but in Tuttle the fixed costs would be $1.2 million.Sale prices and variable costs for the three models are shown in the table.  Table A.1
-Use the information in Table A.1.Assume the fixed costs and sales price in both locations are constants and the variable costs in San Francisco are as shown in the table.By how much would the variable cost in Tuttle have to rise to give both locations an identical break-even point for the Regular model?

Accepted Answer

To find the break-even point, we need to set the total cost equal to the total revenue and solve for the quantity sold.
Let Q be the number of units sold.
For San Francisco:
Total cost = Fixed cost + variable cost * Q = $2.5 million + $1.50 * Q
Total revenue = Sales price * Q = $5.00 * Q
Set these equal and solve for Q:
$2.5 million + $1.50Q = $5.00Q
$2.50Q = $2.5 million
Q = 1 million
For Tuttle:
Total cost = Fixed cost + variable cost * Q = $1.2 million + (variable cost + x) * Q
Total revenue = Sales price * Q = $5.00 * Q
Set these equal and solve for Q (using the quantity sold at the break-even point in San Francisco):
$1.2 million + (variable cost + x) * 1 million = $5.00 * 1 million
$3.8 million = (variable cost + x) * 1 million
variable cost + x = $3.80
x = $3.80 - variable cost
So, for both locations to have the same break-even point for the Regular model, the variable cost in Tuttle would have to increase by $10.40 ($3.80 - $1.40 = $2.40).

Question 7

Use the following to answer the questions below.
Luvmatics plans to produce a new product.Three different models are planned: the Regular,Large,and Jumbo.The fixed costs depend on which of two locations are used;in San Francisco the fixed costs would be $2.5 million per year,but in Tuttle the fixed costs would be $1.2 million.Sale prices and variable costs for the three models are shown in the table.  Table A.1
-Use the information in Table A.1.If executives decide to produce at the San Francisco plant but are nervous about sales numbers,which model would provide the greatest profit at the lowest sales volumes?

Accepted Answer

The answer of Use the following to answer the questions...

Question 8

Demron is in serious negotiations to purchase a welding machine that will enable them to perform their own welding.They currently have their welding outsourced at a cost of $1.50 per weld and a fixed cost of $45,000.Their marketing team feels that they can sustain an annual sales volume sufficient to require 35,000 welds.If a fancy new welding rig costs $13,500 what is the maximum variable cost per weld that Demron should be willing to pay in order to bring this process in-house?

Accepted Answer

To determine the maximum variable cost per weld Demron should be willing to pay, we need to calculate the total cost of welding outsourced versus in-house.

Outsourced cost = $1.5 x 35,000 + $45,000 = $97,500 
In-house cost = $13,500 (cost of welding machine) + variable cost x 35,000

Assuming Demron wants to break even between the two options:

$97,500 = $13,500 + variable cost x 35,000 
$84,000 = variable cost x 35,000 
Variable cost = $2.40

Therefore, the maximum variable cost per weld that Demron should be willing to pay is $2.40 per weld.

Choice B is the correct answer.

Question 9

Zipco is in serious negotiations to purchase a chunking machine that will enable them to perform their own chunking at $1 per unit.They currently have their chunking outsourced at a cost of $1.50 per unit and a fixed cost of $45,000.Their marketing team feels that they can sustain an annual volume of 10,000 units.What is the maximum fixed cost that Zipco should be willing to bear in order to perform their own chunking?

Accepted Answer

The maximum fixed cost Zipco should be willing to bear to perform their own chunking equals the total current cost of outsourcing minus the total variable cost of performing chunking in-house. Currently, outsourcing costs are $1.50 per unit for 10,000 units plus a fixed cost of $45,000, totaling $60,000 ($1.50 * 10,000 + $45,000). Performing chunking in-house will cost $1 per unit for 10,000 units, totaling $10,000. Therefore, the maximum additional fixed cost Zipco should be willing to bear to not exceed the current outsourcing cost is $50,000 ($60,000 total current cost - $10,000 in-house variable cost).

Question 10

Use the following to answer the questions below.
Luvmatics plans to produce a new product.Three different models are planned: the Regular,Large,and Jumbo.The fixed costs depend on which of two locations are used;in San Francisco the fixed costs would be $2.5 million per year,but in Tuttle the fixed costs would be $1.2 million.Sale prices and variable costs for the three models are shown in the table.  Table A.1
-Use the information in Table A.1.How much does Luvmatics make for each Jumbo unit that is produced in Tuttle and sold at the listed price?

Accepted Answer

To find the profit per unit for the Jumbo model in Tuttle, we need to calculate the difference between the sale price and variable cost.

Profit per unit for Jumbo model = Sale price - Variable cost

= $98 - $40

= $58

Therefore, Luvmatics makes $58 for each Jumbo unit that is produced in Tuttle and sold at the listed price.

Question 11

Minor Video has opened a new store renting videocassettes.Fixed costs are $60,000,and the variable cost per unit is $1.50.The average sale is $5 per customer.Use the following axes to determine the break-even quantity graphically.Next,refine your solution by solving it algebraically.(Show your work for credit. )

Accepted Answer

To determine the break-even quantity graphically, we need to plot the total cost and total revenue functions on the same graph and identify the point where they intersect.

Total Revenue = Average Sale * Quantity
Total Cost = Fixed Cost + (Variable Cost per unit * Quantity)

Substituting the given values, we get:
Total Revenue = 5Q
Total Cost = 60,000 + 1.5Q

Setting TR = TC, we get:
5Q = 60,000 + 1.5Q
3.5Q = 60,000
Q = 17,143 (rounded to nearest whole number)

Therefore, the break-even quantity is 17,143 rentals.

Refining the solution algebraically:
To confirm this result algebraically, we can solve for Q by setting TR = TC as follows:

5Q = 60,000 + 1.5Q
3.5Q = 60,000
Q = 17,143

So, the store needs to rent out at least 17,143 videocassettes to break even.

Since the answer choices are given in ranges, we can see that the break-even quantity is between 10,000 and 20,000 rentals, and therefore the best choice is B.

Question 12

Use the following to answer the questions below.
A company must decide if it will make or buy an item it needs.The company can make the item for $10 per unit,but must invest $15,000 in tooling to do so.An outside firm has quoted a total price of $12 per unit to supply the quantity required (assume their fixed costs are included in the quoted price).
-Refer to the instruction above.What does the company save for the year by selecting this low-cost option (for annual requirements of 5,000 units)?

Accepted Answer

The answer of Use the following to answer the questions...

Question 13

Use the following to answer the questions below.
A company is considering two suppliers for the purchase of a part needed for manufacturing.Particulars are as follows:
 
-Refer to the instruction above.For an annual volume of 3,000 units,which supplier should be chosen?

Accepted Answer

Supplier A has a lower total cost than Supplier B for an annual volume of 3,000 units, based on the given cost table. Therefore, Supplier A should be chosen.

Question 14

A new product that will sell for $75.00 has variable costs of $38.00 per unit.Fixed costs of $75,000 must be incurred every year to manufacture this product.What is the annual volume to break even?

Accepted Answer

To find the break-even point, use the formula: Break-even volume = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit). Here, it is $75,000 / ($75 - $38) = $75,000 / $37 = 2027 units. Therefore, the break-even volume is 2000 units or more.

Question 15

Use the following to answer the questions below.
Luvmatics plans to produce a new product.Three different models are planned: the Regular,Large,and Jumbo.The fixed costs depend on which of two locations are used;in San Francisco the fixed costs would be $2.5 million per year,but in Tuttle the fixed costs would be $1.2 million.Sale prices and variable costs for the three models are shown in the table.  Table A.1
-Use the information in Table A.1.What is the difference in break-even points for the Large model between Tuttle and San Francisco?

Accepted Answer

To find the break-even point for the Large model, we need to divide the fixed costs by the contribution margin per unit (selling price - variable cost per unit).

For the San Francisco location: 
Large model contribution margin = $55 - $30 = $25 
Break-even point = $2.5 million / $25 = 100,000 units

For the Tuttle location: 
Large model contribution margin = $45 - $25 = $20 
Break-even point = $1.2 million / $20 = 60,000 units

The difference in break-even points between Tuttle and San Francisco is: 
100,000 - 60,000 = 40,000 units

Therefore, the best choice is to produce the Large model in Tuttle since the break-even point is lower, and they will be able to reach profitability at a lower sales volume.

Question 16

Use the following to answer the questions below.
Luvmatics plans to produce a new product.Three different models are planned: the Regular,Large,and Jumbo.The fixed costs depend on which of two locations are used;in San Francisco the fixed costs would be $2.5 million per year,but in Tuttle the fixed costs would be $1.2 million.Sale prices and variable costs for the three models are shown in the table.  Table A.1
-Use the information in Table A.1.How many units of the Regular size must be sold each year to break even if production is at the San Francisco plant?

Accepted Answer

The answer of Use the following to answer the questions...

Question 17

A poultry farmer is debating whether to acquire Rhode Island Reds or Buff Orpingtons to lay the eggs he wants to sell.The fixed costs for the Buffs would be $7500 and the variable costs per egg would be a dime per egg.The Reds would have a fixed cost of $6000 and a variable cost of fifteen cents.At what level of egg production would the poultry farmer be indifferent between Rhode Island Reds and Buff Orpingtons?

Accepted Answer

The answer of A poultry farmer is debating whether to...

Question 18

Use the following to answer the questions below.
A company is considering two suppliers for the purchase of a part needed for manufacturing.Particulars are as follows:
 
-Refer to the instruction above.What is the annual break-even quantity for choosing between the two suppliers?

Accepted Answer

Based on the given information, Supplier A has a fixed cost of $10,000 and a variable cost of $5 per unit, while Supplier B has a fixed cost of $20,000 and a variable cost of $3 per unit. To determine the break-even quantity, we need to find the quantity where the total cost of each supplier is equal. 
For Supplier A: 
Total Cost = Fixed Cost + (Variable Cost x Quantity) 
Total Cost = $10,000 + ($5 x Q)

For Supplier B: 
Total Cost = Fixed Cost + (Variable Cost x Quantity) 
Total Cost = $20,000 + ($3 x Q)

Setting the two total cost equations equal to each other: 
$10,000 + ($5 x Q) = $20,000 + ($3 x Q) 
$2 x Q = $10,000 
Q = 5,000

Therefore, the annual break-even quantity is 5,000 units. 
Supplier B has the lower variable cost, so it is the better choice for purchasing larger quantities. However, for quantities below the break-even point of 5,000 units, Supplier A should be chosen as it has the lower fixed cost.

Question 19

Commodore is debating whether to produce the printed circuit boards for a new line of video cameras or outsource their production to a company that specializes in this operation.Strictly from a cost standpoint,production of the circuit boards would definitely be outsourced if:

Accepted Answer

If the production volumes are less than Commodore's break-even quantity, it means that producing the circuit boards in-house would not cover the fixed and variable costs, making outsourcing a more cost-effective option.

Question 20

A software company that sells its software pre-installed in personal computers is considering making its own computers instead of purchasing them from the Mega-Chip Company.To assemble their own computers could cost $1,000,000 in fixed costs and $100 per unit in variable costs.The company currently buys PCs for $1200,with no fixed costs.What is the break-even quantity?

Accepted Answer

The answer of A software company that sells its software...

Quiz 17: Decision Making

A new product will sell in the market for $12.It costs $7 (unit variable cost) to manufacture on a new lathe machine.If the break-even quantity is 10,000 units,what is the annual fixed cost involved in acquiring the machine and in paying other fixed costs?

A new product is being considered that will require $45,000 in fixed costs per year.Variable costs per unit are estimated to be $12.72.The firm wants to break even if 8000 units are produced and sold per year.What should be the price?

Use the following to answer the questions below. A company is considering two suppliers for the purchase of a part needed for manufacturing.Particulars are as follows: -Refer to the instruction above.For an annual volume of 3,000 units,which supplier should be chosen?

A new product that will sell for $75.00 has variable costs of $38.00 per unit.Fixed costs of $75,000 must be incurred every year to manufacture this product.What is the annual volume to break even?

Use the following to answer the questions below. A company is considering two suppliers for the purchase of a part needed for manufacturing.Particulars are as follows: -Refer to the instruction above.What is the annual break-even quantity for choosing between the two suppliers?

Commodore is debating whether to produce the printed circuit boards for a new line of video cameras or outsource their production to a company that specializes in this operation.Strictly from a cost standpoint,production of the circuit boards would definitely be outsourced if: