Problem (1)

Mop and Broom Manufacturing is evaluating whether to produce a new type of mop. The company is considering the operations requirements for the mop as well as the market potential. Estimates of fixed costs per year are $40,000, and the variable cost for each mop produced is $20.

1. If the company sells the product at a price of $25, how many units of product have to be sold in order to break even? Use both the algebraic and graphical approaches.

2. If the company sells 10,000 mops at the product price of $25, what will be the contribution to profit?

3. Discuss your answer?

Problem 2

Mop and Broom Manufacturing, from Problem 12, has decided to produce a new type of mop. The mop can be made with the current equipment in place. However, the company is considering the purchase of new equipment that would produce the mop more efficiently. The fixed cost would be raised to $50,000 per year, but the variable cost would be reduced to $15 per unit. The company still plans to sell the mops at $25 per unit. Should Mop and Broom produce the mop with the new or current equipment described in Problem 12?

1. Specify the volume of demand for which you would choose each process.

2. Discuss your answer?