Assignment 7 Jason Aronsberg 100535551

Question 1: Jordan is developing a business plan for a residential building inspection service he may start. Rent and utilities for the office will cost $1,500 per month. The fixed costs for a vehicle would be $325 per month. He estimates that the variable office costs will be $100 per inspection and $50 per inspection for commuting. Jordan will also spend $150/month to lease a computer and $275/month for advertising. Solutions: a) 2250 Fixed 150x Variable 275x = 150x + 2250 125x/125 = 2250/125 x=18 18 inspections to break even so he needs 19 to turn a profit

b)Breakeven = 18 Revenue = 275x = 275(18) =$4950 rev. a month c) P=R C P=275x-(150x+2250) =275(15) (150(15) + 2250) =4125 2250 2250 =4125-4500 =-375 A loss of $375 if he does 15 inspections

d) 5000 = 275x (150x +2250) 5000 + 2250 = 275x 150x 7250/125 = 125x/125 x= 58 He should make 58 inspections

Question 2: An aluminum company uses a specialized process to produce brackets for the automotive industry. The companys profit function in millions of dollars for x million brackets is P = 0.7x 24.5 and their cost function is C = 0.9x + 24.5. Find the breakeven point in millions of units.

Solution: P=R-C P+C=R 0.7x + 0.9x 24.5 + 24.5 = R R=1.6x Breakeven: R=C 1.6X = 0.9X + 24.5 0.7x/0.7 = 24.5/0.7 X=35 The breakeven is producing 35 million brackets.

Question 3: A manufacturing company is looking at the feasibility of producing a new product. A new production line could manufacture up to 800 units per month at a cost of $50 per unit. Fixed costs would be $22,400 per month. Variable selling and shipping costs are approximated as $20/unit. A study carried out to understand the market shows that at $110 they would be reasonably competitive. Solutions: a) P = x(SP VC) FC SP=110 VC=70 FC=22400 P= x(110-70) 22400 0=x(110-70)-22400 22400=x(40) 22400/40=x x=560 560/800=0.7 The breakeven point as a percent of capacity is 0.7. b) 800 * 0.9 =720 R=110x =110(720) =$79200 net income P=R-C P=79200 (70(720) + 22400)) P=6400 c) 0.55 * 800 =440 P=R-C P=110(440) (70(440)+22400) =48400 (53200) =-4800 The resulting income would be a loss of $4800.

Question 4: A manufacturer of major appliances provides the following information about the operation of the refrigeration division: Fixed costs per period are $26,880; Variable costs per unit are $360; Selling price per unit is $640.

Solutions: a) 640-360 = 280 b) (640-360)/640 = 0.4375 c) 26880/280 = 96