Chapter 7 - Problem 1

The Rapid Meal has two restaurants that are open 24 hours a day. Fixed costs for the two restaurants together total $450,000 per year. Service varies from a cup of coffee to full meals. The average sales check for each customer is $8.00. The average cost of food and other variable costs for each customer is $3.20. Target net income is $105,000.

Questions:

Determine the revenues needed to obtain the target net income.

How many sales checks are needed to (a) earn a net income of $105,000 and (b) to break even?

Determine net income if the number of sales checks is 150,000.

Chapter 7 - Problem 2

Lenny Financial Corporation is a subsidiary of Harpo Enterprises. Processing loan applications is the main task of the corporation. Last year, Nancy Bar, manager of the Loan Department, established a policy of charging a $250 fee for every loan application processed. Next year's variable costs have been projected as follows: loan consultant's wages, $15.50 per hour ( a loan application takes five hours to process); supplies $2.40 per application; and other variable costs, $5.60 per application. Annual fixed costs include depreciation of equipment, $8,500; building rental, $14,000; promotional costs, $12,500; and other fixed costs, $8,099.

Questions:

Determine the number of loan applications the company must process to (a) break even and (b) earn a profit of $14,476.

Determine the number of applications the company must process to earn a target profit of $20,000 if promotional costs increase by $5,662.

Assuming the original information and the processing of 500 applications, compute the loan application fee the company must charge if the target profit is $41,651.

Bar believes that 750 loan applications is the maximum number her staff can handle. How much more can be spent on promotional costs if the highest fee tolerable to the customer is $280, if variable costs cannot be reduced, and if the target net income for such an application load is $50,000?

Chapter 7 Problem 3

Projected cost information for a new product is as follows:

Variable manufacturing costs: $14 per unit

Variable selling costs: $4 per unit

Fixed manufacturing costs: $125,000

Fixed selling costs: $55,000

The product is to be sold at $23 per unit

1. What is the break-even point for this product, in sales dollars?

2. What price would the company have to sell this product for if they wish to sell

40,000 units, and realize a profit of $60,000?