Business Mathematics Exercises Break Even Analysis 3x411k

DPB2033 BUSINESS MATHEMATICS

Exercises Chapter 2 Break-Even Point Analysis

Problem # 1 Try out this problem for your self If a firm receives $100 revenue from selling 5 units of a product, and pays $25 in total variable costs, then what is the contribution and contribution margin (%) of each unit?

Answer ($15, 75%)

Answer Total Revenues = Selling Price per unit * Units Sold = $20 * 5 = $100 Total Variable Costs = Unit Variable Costs * Units Sold = $5 * 5 = $25 Unit Contribution = P per unit – V per unit = $20 - $5 = $15 Contribution Margin % = (Unit Contribution / Selling Price) * 100 = ($15 / $20) x 100 = 75%

Problem # 2 Try out this problem for your self • You own a lemonade stand. • It costs you RM 1.50 to make cup of lemonade • You sell your lemonade for RM 5.00. • It cost you RM 5,000 to rent for the space of your lemonade stand. • How many cups of lemonade do you have to sell to breakeven? Solve now

Answer (1, 429 cups, RM7, 145)

Answer Given: V

= RM 1.50 P = RM 5.00 F = RM 5,000

Solution:

BEP units = F /( P – V) = 5000 / ( 5 – 1.50) = 5000/ 3.5 = 1, 428.57 BEP units ≈ 1, 429 units

BEP sales = BEP x P = 1, 429 x 5 BEP sales ≈ RM 7, 145

Problem # 3 Swiss entrepreneur Herr Zeitgeist buys watch faces from Italy for 5 Euros, buys watch mechanisms for 15 Euros from Spain, and hires assembly in Portugal for 10 Euros per watch. His only other expense is 100,000 Euros he pays the Zuricher Flughafen ad agency to place ads in in-flight magazines to build the Zeitgeist brand. Herr Zeitgeist sells each watch for 50 Euros to airport duty-free shops, earning the retailer an 80% margin. How many watches must he sell to break-even?

Answer (5, 000 watches, RM 250, 000)

Answer Given: V

= 5+15+10 = 30 Euros P = 50 Euros

Solution:

BEP units = F /( P – V) = 100,000 / ( 50 – 30) = 100,000 / 20 = 5, 000 BEP units ≈ 5, 000 BEP sales = BEP x P

= 5, 000 x 50 BEP sales ≈ RM 250, 000

F = 100,000 Euros

Problem # 4 Johnson Company and Smith Company are competing firms that offer limousine service from the Charlesburg airport. While Johnson pays most of its employees on a per-ride basis, Smith prefers to pay its employees fixed salaries. Information about the selling prices per ride and cost structures of the two firms is given below.

(a) Draw two graphs plotting profit as a function of the number of rides for the two firms.

Answer (Johnson = 50,000 rides, $1, 500, 000)

Answer (Smith = 100,000 rides, $3, 000, 000)

Answer