Please only answer question # 8 and #9

You own a shop that prints posters of animals, landscapes and current famous celebrities. Last year, you launched a new marketing campaign that you hoped would increase poster sales. It appears your marketing tactics are starting to pay off: you are seeing a steady increase in demand, not only for gorgeous cities, beaches and the Grand Canyon, but also A-list celebrities like Honey Boo Boo and Caitlyn Jenner.

The issue you now face is one of capacity and when/if to buy a second printer to increase your rated capacity. Printers are expensive and youre not sure if youll see a return on your investment.

Part 1

Using the cost, capacity, and revenue information below in Table 1 for both your current operation and your future operation (with the additional printer),

Table 1:

Fixed cost:

Variable cost per poster: Annual capacity:

Sales price of each poster:

Current

$2,000

$4.50

3,500 posters $10.00

Future

$3,200

$6.00

6,500 posters $10.00

What is the BEP for your current operation?

What is the BEP for your future operation if you decide to purchase the 2nd machine?

What is your current annual profit?

What is your future potential annual profit if you decide to purchase the second machine?

Should you buy the new machine?

NOTE: For questions 3 and 4, assume you produce to capacity and sell all of the posters you produce.

Part 2

You just found out that the new machine produces a superior quality print, which increases costs. Thus, the future variable cost per poster is now $6.75. You decide this upgrade should be reflected in the price of all posters sold, so the future sales price of $11.00. Assuming future fixed cost and annual capacity remain the same ($3,200 and 6,500 respectively), answer questions 1-4 again.

Should you buy the new machine, given the new revenue per poster?

NOTE 1: Fixed cost and annual capacity numbers remain the same.

NOTE 2: For questions 6 and 7, assume you produce to capacity and sell all of the posters you produce.

Part 3

8. Create two decision trees, one for the data in Parts 1 and 2, using the following percentages: Part 1: Current Capacity

Breakeven 2,500 posters FullCapacity

Part 1: Future Breakeven 5,000 posters FullCapacity

10% 20% 70%

Capacity 25% 30% 45%

Part 2: Current Capacity

Breakeven 2,500 posters FullCapacity

Part 2: Future Breakeven 4,000 posters FullCapacity

10% 20% 70%

Capacity 35%

30% 35%

9. Which decision tree EV produces the highest profit? Assuming the forecasted demand