Dave Ross is a world-renowned trampoline manufacturer and trampoline coach. In the 2002 Olympics, Dave coached two medalists for Canada. Since
then, he has supplied trampolines for a number of competitive programs around the world and even for Cirque du Soleil’s use in its performances.
Recently, Dave was approached by Wal-Mart to supply trampolines in its 10 stores in Toronto, Ontario. Wal-Mart was willing to pay Dave $1200 for each delivered trampoline which they would sell to consumers for $1800. Unlike typical backyard trampolines,
Dave’s homemade version used a woven string bed. These beds were woven on a large loom at Dave’s plant. Each bed took approximately 12 hours to weave. He paid one weaver $17 per hour for each bed. Dave outsourced the frame construction to welding shop and paid $235 for each frame. In addition to these two costs, Dave also paid $4.25 for each spring (30 were required for each trampoline), $60 for packing materials, and $125 for delivery of each completed trampoline to Wal-Mart. Dave could produce about 325 of these trampolines each year.
To produce this line of trampolines, Dave estimated his additional annual costs as follows. Rent for additional space would be $14,500, utilities would amount to $6500, insurance would be $2200, office expenses would total $3200, and Management would draw a salary of $38,000.

a. What is the variable cost per trampoline?
b. What are the total fixed costs?
c. What is Dave’s mark-up on price to Wal-Mart (%)? What is the same mark- up on cost?
d. What is Wal-Mart’s mark-up on price to the consumer (%)? What is its mark-up on cost?
e. What is Dave’s break-even quantity for this venture?
f. What percentage of his capacity does this break-even quantity represent?
g. If Dave sold 500 trampolines to Wal-Mart, what would his profit be?

Answer rating: 100% (QA)

a Variable cost per trampoline Variable costs are the costs that change with the level of production In this case the variable costs per trampoline ar... View the full answer