Two college students have come up with the same idea at the same time, and because they are unable to decide who should be CEO, they go into head-to-head competition. They do, however, build their business models quite differently.

Elsa decides to hire assembly workers on payroll; Anna decides to outsource her assembly to a contract manufacturer which charges a fixed amount per piece manufactured.

Here are the characteristics of each business:

Elsas cost structure

Material costs	$5/unit
Salaries	$13,000 per month
Rent	$36,000 per year
Advertising	$3,000 per month
Admin Expenses	$1,000 per month

Annas cost structure

Material costs	$5/unit
Contract Manufacturer Costs	$10/unit
Salaries	$24,000 per year
Rent	$1,000 per month
Advertising	$3,000 per month
Admin Expenses	$1,000 per month

Both companies can sell their products for $25 each as they are essentially the same!

Questions:

1. I agree that I am taking this quiz on my own without any help or benefit from other individuals either in or outside of the class. The quiz is open note, so I may use my notes from the class. I also agree that if I have knowledge of other student's in the class not following this policy I will inform the instructor immediately. If I'm found to not be following this policy I will receive a zero for this assignment and this will be reported to Cal Poly's Office of Instructional Integrity for further disciplinary action.

a) True

b) False

2. What is the breakeven number of units sold for Elsa?

3. What is the breakeven number of units for Anna's business?

4. Assume that each company sells 1,000 units in the first month. What is the operating profit for Elsa's company that month (before taxes, etc.)?

5. Assume that each company can sell 1,000 units in the first month. What is the operating profit for Anna's company that month (before taxes, etc.)?