Q1.

For the following data compute (a) Total fixed cost (b) theAverage variable cost (c) the break-even price of the washingmachine:

• CEO Salary: $80,000 per year
• Rent: $ 25,000 per year
• Hourly wages: $ 11/machine
• Component costs: $ 262/machine
• Interest cost: $ 11,000 per year
• Cost of Manufacturing plant and equipment for the project(expected to last 7 years) $ 70,000

Production: 12,000 washing machines peryear

Q2:

Consider the data of Question 1 – Ignore the productiondata; now if the selling price of a washing machine were $400, then what would the break-even level of ‘quantity’ demand forwashing machines be.

Q3:

Consider the data of Question 1- Ignore the production data. Nowif the firm wanted to make a profit of $ 3000 in a year then whatshould the level of production be?

Q4:

A firm in the year 1990 bought 60 baseball bats for $20 each andsold 40 of them in the same year for $ 25 each. What was the firm’sprofit or loss for the year?

Q5:

1. The cost of a baseball bat to a trading company is $ 28. Whatshould its selling price be if it wishes to earn 25% as apercentage of cost.
2. The cost of a baseball bat to a trading company is $ 28. Whatshould its selling price be if it wishes to earn 25% as apercentage of sales.

Q6:

Calculate elasticity for the following product and interpret it-is the demand elastic, inelastic, relatively elastic etc. Also whatmore can be said about the product?

When the price of the product falls from $10 to $ 6, then thequantity demanded of the product falls from 200 units to 170units.

Q7:

There are two retail stores – both of them have sales of $200000 annually and annual cost of goods sold is $150000 in each ofthe stores. Labor and other expenses are $10000 annually in each ofthe two stores. The only difference between the two stores is thatthe normal inventory or stock of goods in Store A is $800000, whilethe normal inventory or stock of goods in store B is $400000.Estimate the difference in profitability of the two stores.

Q 8:

A company manufactures TV sets at a cost of $300 each. Aftermanufacturing it finds that it requires to maintain an averageinventory of about 800 TV sets that are in either warehouses or intransit in transportation. Thereafter, when the sets are sold toretailers the terms of selling are “payment may be made in 60days”. If production is 1000 TV sets in a month, estimate theadditional interest costs because of holding inventories as well asextending credit in the market (with retailers makingpayments after two months in keeping with the terms of sale).

Q9:

Interpret the following elasticities for products A, B and C, byspecifying whether (a) the product is normal or prestige (b)whether it is elastic, or inelastic etc.

Product A : Elasticity of demand is ( - ) 2

Product B: Elasticity of demand is (+) 0.3

Product C: Elasticity of demand is (- ) 1.0

In the case of Product C also explain what you expect to happenif price increases by 10%?

Q10:

Assuming 10% as the annual rate of discount or interest,calculate the net present value for the following project:

Initial investment (an outflow) $ 40000

Revenue yr 1: $ 80000 Costs yr 1: $ 60000

Revenue yr 2:$100000 Costs yr2: $60000

Revenue yr 3:$120000 Costs yr 3: $ 70000

Answer rating: 100% (QA)

Q1 a Total fixed cost 186000 80000 25000 11000 70000 b Average variable cost ... View the full answer