Chapter 10 Question 1

Cox Electric makes electronic components and has estimated the following for a new

Fixed cost = $10,000

Material cost per unit = $0.15

Labor cost per unit = $0.10

Revenue per unit = $0.65

Note that fixed cost is incurred regardless of the amount produced. Per-unit material and labor cost together make up the variable cost per unit. Assuming that Cox Electric sells all that it produces, profit is calculated by subtracting the fixed cost and total variable cost from total revenue.

1a. Build an influence diagram that illustrates how to calculate profit.

1b. Using mathematical notation similar to that used for Nowlin Plastics, give a mathematical model for calculating profit.