92 CHAPTER 2 Introduction to Spreadsheet Modeling Break-Even Analysis at SportsExchange Facility Comparison at SportsExchange Sports...

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92 CHAPTER 2 Introduction to Spreadsheet Modeling Break-Even Analysis at SportsExchange Facility Comparison at SportsExchange Sports Exchange is a regional refurbisher of sporting goods equipment. It specializes in upgrad- ing football equipment that it receives from high schools and colleges. Processes used by SportsExchange include sewing pants and jerseys, replacing pads, repairing and painting hel- mets, and replacing laces, snaps, and elastic in pants. The most expensive process for Sports Exchange is painting helmets. Regulations that con- trol worker safety and environmental emissions mandate a paint room that manages fumes effectively. In order to continue in its lucrative business, SportsExchange is required to invest in a new state-of-the-art painting facility. Sports Exchange has identified three manufacturers of turnkey spray booths. The fixed and variable costs associated with each of the three alternatives are presented in Table 1 below: TABLE 1: COSTS ASSOCIATED WITH SPORTSEXCHANGE'S THREE PAINTING ALTERNATIVES Alternative Fixed cost INTERACTIVE CASE A: Enviro-Spray $500,000 B: Spray Center $207,500 C: Crystal Coat $265,000 Variable cost $0.148 $1.321 $0.910 Analysis 38 SportsExchange believes it will need to refinish 200,000 helmets. What is the total cost for each 3 of the alternatives for refinishing that quantity of helmets? Which alternative appears to be the best choice (i.e., lowest total cost)? What alternative appears to the best choice if quantity to refinish increases to 320,000 helmets? The cost accountants at Sports Exchange may have made an error in calculating the fixed costs associated with the Spray Center alternative. They now believe that the fixed costs for the Spray Center alternative should be $150,000. If Sports Exchange expects to refinish 200,000 helmets, which alternative looks the best now? What happens to the relative attractiveness of the Crystal Coat alternative as Spray Center's fixed costs decrease to $150,000? In addition, the cost accountants have revealed that their estimate for Crystal Coat's vari- able cost may be too low. However, they don't know how by much they are off and would like to know how sensitive Crystal Coat is to changes in variable costs, specifically increases in variable costs. Give the cost accountants some assistance here by increasing Crystal Coat's variable costs and describe the changes that occur relative to the other alternatives. 92 CHAPTER 2 Introduction to Spreadsheet Modeling Break-Even Analysis at SportsExchange Facility Comparison at SportsExchange Sports Exchange is a regional refurbisher of sporting goods equipment. It specializes in upgrad- ing football equipment that it receives from high schools and colleges. Processes used by SportsExchange include sewing pants and jerseys, replacing pads, repairing and painting hel- mets, and replacing laces, snaps, and elastic in pants. The most expensive process for Sports Exchange is painting helmets. Regulations that con- trol worker safety and environmental emissions mandate a paint room that manages fumes effectively. In order to continue in its lucrative business, SportsExchange is required to invest in a new state-of-the-art painting facility. Sports Exchange has identified three manufacturers of turnkey spray booths. The fixed and variable costs associated with each of the three alternatives are presented in Table 1 below: TABLE 1: COSTS ASSOCIATED WITH SPORTSEXCHANGE'S THREE PAINTING ALTERNATIVES Alternative Fixed cost INTERACTIVE CASE A: Enviro-Spray $500,000 B: Spray Center $207,500 C: Crystal Coat $265,000 Variable cost $0.148 $1.321 $0.910 Analysis 38 SportsExchange believes it will need to refinish 200,000 helmets. What is the total cost for each 3 of the alternatives for refinishing that quantity of helmets? Which alternative appears to be the best choice (i.e., lowest total cost)? What alternative appears to the best choice if quantity to refinish increases to 320,000 helmets? The cost accountants at Sports Exchange may have made an error in calculating the fixed costs associated with the Spray Center alternative. They now believe that the fixed costs for the Spray Center alternative should be $150,000. If Sports Exchange expects to refinish 200,000 helmets, which alternative looks the best now? What happens to the relative attractiveness of the Crystal Coat alternative as Spray Center's fixed costs decrease to $150,000? In addition, the cost accountants have revealed that their estimate for Crystal Coat's vari- able cost may be too low. However, they don't know how by much they are off and would like to know how sensitive Crystal Coat is to changes in variable costs, specifically increases in variable costs. Give the cost accountants some assistance here by increasing Crystal Coat's variable costs and describe the changes that occur relative to the other alternatives.

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To calculate the total cost for each of the alternatives for refinishing 200000 helmets we can use t... View the full answer