3. A producer of pottery is considering the addition of a new plant to absorb the...

Transcribed Image Text:

3. A producer of pottery is considering the addition of a new plant to absorb the backlog of demand that now exists. The primary location being considered will have fixed costs of $9,200 per month and vari- able costs of 70 cents per unit produced. Each item is sold to retailers at a price that averages 90 cents. a. What volume per month is required in order to break even? b. What profit would be realized on a monthly volume of 61,000 units? 87,000 units? c. What volume is needed to obtain a profit of $16,000 per month? d. What volume is needed to provide a revenue of $23,000 per month? e. Plot the total cost and total revenue lines. 4. A small firm intends to increase the capacity of a bottleneck operation by adding a new machine. Two alternatives, A and B, have been identified, and the associated costs and revenues have been estimated. Annual fixed costs would be $40,000 for A and $30,000 for B; variable costs per unit would be $10 for A and $11 for B; and revenue per unit would be $15. a. Determine each alternative's break-even point in units. b. At what volume of output would the two alternatives yield the same profit? c. If expected annual demand is 12,000 units, which alternative would yield the higher profit? 5. A producer of felt-tip pens has received a forecast of demand of 30,000 pens for the coming month from its marketing department. Fixed costs of $25,000 per month are allocated to the felt-tip opera- tion, and variable costs are 37 cents per pen. a. Find the break-even quantity if pens sell for $1 each. b. At what price must pens be sold to obtain a monthly profit of $15,000, assuming that estimated demand materializes? 6. A real estate agent is considering changing her land line phone plan. There are three plans to choose from, all of which involve a monthly service charge of $20. Plan A has a cost of $.45 a minute for daytime calls and $.20 a minute for evening calls. Plan B has a charge of $.55 a minute for daytime calls and $.15 a minute for evening calls. Plan C has a flat rate of $80 with 200 minutes of calls allowed per month and a charge of $.40 per minute beyond that, day or evening. a. Determine the total charge under each plan for this case: 120 minutes of day calls and 40 minutes of evening calls in a month. b. Prepare a graph that shows total monthly cost for each plan versus daytime call minutes. c. If the agent will use the service for daytime calls, over what range of call minutes will each plan be optimal? d. Suppose that the agent expects both daytime and evening calls. At what point (i.e., percentage of call minutes for daytime calls) would she be indifferent between plans A and B? 7. A firm plans to begin production of a new small appliance. The manager must decide whether to purchase the motors for the appliance from a vendor at $7 each or to produce them in-house. Either of two pro- cesses could be used for in-house production; one would have an annual fixed cost of $160,000 and a variable cost of $5 per unit, and the other would have an annual fixed cost of $190,000 and a variable cost of $4 per unit. Determine the range of annual volume for which each of the alternatives would be best. 8. A manager is trying to decide whether to purchase a certain part or to have it produced internally. Internal production could use either of two processes. One would entail a variable cost of $17 per unit and an annual fixed cost of $200,000; the other would entail a variable cost of $14 per unit and an annual fixed cost of $240,000. Three vendors are willing to provide the part. Vendor A has a price of $20 per unit for any volume up to 30,000 units. Vendor B has a price of $22 per unit for demand of 1,000 units or less, and $18 per unit for larger quantities. Vendor C offers a price of $21 per unit for the first 1,000 units, and $19 per unit for additional units. a. If the manager anticipates an annual volume of 10,000 units, which alternative would be best from a cost standpoint? For 20,000 units, which alternative would be best? b. Determine the range for which each alternative is best. Are there any alternatives that are never best? Which? 9. A company manufactures a product using two machine cells. Each cell has a design capacity of 250 units per day and an effective capacity of 230 units per day. At present, actual output aver- ages 200 units per cell, but the manager estimates that productivity improvements soon will increase output to 225 units per day. Annual demand is currently 50,000 units. It is forecasted that, within two years, annual demand will triple. How many cells should the company plan to produce to satisfy predicted demand under these conditions? Assume 240 workdays per year. 3. A producer of pottery is considering the addition of a new plant to absorb the backlog of demand that now exists. The primary location being considered will have fixed costs of $9,200 per month and vari- able costs of 70 cents per unit produced. Each item is sold to retailers at a price that averages 90 cents. a. What volume per month is required in order to break even? b. What profit would be realized on a monthly volume of 61,000 units? 87,000 units? c. What volume is needed to obtain a profit of $16,000 per month? d. What volume is needed to provide a revenue of $23,000 per month? e. Plot the total cost and total revenue lines. 4. A small firm intends to increase the capacity of a bottleneck operation by adding a new machine. Two alternatives, A and B, have been identified, and the associated costs and revenues have been estimated. Annual fixed costs would be $40,000 for A and $30,000 for B; variable costs per unit would be $10 for A and $11 for B; and revenue per unit would be $15. a. Determine each alternative's break-even point in units. b. At what volume of output would the two alternatives yield the same profit? c. If expected annual demand is 12,000 units, which alternative would yield the higher profit? 5. A producer of felt-tip pens has received a forecast of demand of 30,000 pens for the coming month from its marketing department. Fixed costs of $25,000 per month are allocated to the felt-tip opera- tion, and variable costs are 37 cents per pen. a. Find the break-even quantity if pens sell for $1 each. b. At what price must pens be sold to obtain a monthly profit of $15,000, assuming that estimated demand materializes? 6. A real estate agent is considering changing her land line phone plan. There are three plans to choose from, all of which involve a monthly service charge of $20. Plan A has a cost of $.45 a minute for daytime calls and $.20 a minute for evening calls. Plan B has a charge of $.55 a minute for daytime calls and $.15 a minute for evening calls. Plan C has a flat rate of $80 with 200 minutes of calls allowed per month and a charge of $.40 per minute beyond that, day or evening. a. Determine the total charge under each plan for this case: 120 minutes of day calls and 40 minutes of evening calls in a month. b. Prepare a graph that shows total monthly cost for each plan versus daytime call minutes. c. If the agent will use the service for daytime calls, over what range of call minutes will each plan be optimal? d. Suppose that the agent expects both daytime and evening calls. At what point (i.e., percentage of call minutes for daytime calls) would she be indifferent between plans A and B? 7. A firm plans to begin production of a new small appliance. The manager must decide whether to purchase the motors for the appliance from a vendor at $7 each or to produce them in-house. Either of two pro- cesses could be used for in-house production; one would have an annual fixed cost of $160,000 and a variable cost of $5 per unit, and the other would have an annual fixed cost of $190,000 and a variable cost of $4 per unit. Determine the range of annual volume for which each of the alternatives would be best. 8. A manager is trying to decide whether to purchase a certain part or to have it produced internally. Internal production could use either of two processes. One would entail a variable cost of $17 per unit and an annual fixed cost of $200,000; the other would entail a variable cost of $14 per unit and an annual fixed cost of $240,000. Three vendors are willing to provide the part. Vendor A has a price of $20 per unit for any volume up to 30,000 units. Vendor B has a price of $22 per unit for demand of 1,000 units or less, and $18 per unit for larger quantities. Vendor C offers a price of $21 per unit for the first 1,000 units, and $19 per unit for additional units. a. If the manager anticipates an annual volume of 10,000 units, which alternative would be best from a cost standpoint? For 20,000 units, which alternative would be best? b. Determine the range for which each alternative is best. Are there any alternatives that are never best? Which? 9. A company manufactures a product using two machine cells. Each cell has a design capacity of 250 units per day and an effective capacity of 230 units per day. At present, actual output aver- ages 200 units per cell, but the manager estimates that productivity improvements soon will increase output to 225 units per day. Annual demand is currently 50,000 units. It is forecasted that, within two years, annual demand will triple. How many cells should the company plan to produce to satisfy predicted demand under these conditions? Assume 240 workdays per year.