1) Nelson, Neddel, and Nickersen Stockbrokers are planning to invest in automated equipment that will process stock transactions. The equipment

1)  Nelson, Neddel, and Nickersen Stockbrokers are planning to invest in automated equipment that will process stock transactions. The equipment requires a $12 million annual investment. The operating costs are $120 per hour. The equipment can generate 5000 transactions per hour.

a.            What is the unit cost of a transaction if 1 million are required?

b.            What is the unit cost if 10 million are required?

c.            What is the unit cost if 100 million are required?

d.            Why would NNN want to keep the level of transactions high?

2)     Finn Bank and Trust is comparing a manual system for processing checks with a highly automated system. Presently, the bank processes about 10,000 checks each workday, and it operates 250 days per year. In the near future, it is planning to sell check processing services to other small rural banks in the area. The bank's management has collected the following data:

                                                     Annualized           Variable

                 System                         Fixed Costs         Labor Costs

                 Manual                         $50,000               $0.045/check

                 Automatic                     $350,000             $0.005/check

a.   At its present volume of checks, which system should Finn use?

b.   If Finn can process checks for other banks and boost its volume to 100,000 checks per day, which system has the lower cost?

c.   At what volume do the two alternatives have equal costs?

                 3) Presently A.J. Electronics has the capacity to produce 1600 monitors each month if it maintains a one-shift operation. The A. J. sales staff is negotiating a deal with a major seller of microcomputers that will increase units sold per month from approximately 1400 to 3000. If the deal is successful, the operations manager plans to add a second shift. Single shift fixed costs are $25,000 per month and labor costs are $15/unit. Adding a second shift will increase fixed costs by $10,000 per month and increase production labor costs to $16 per unit for those units produced on the second shift. This $1 increase is due entirely to paying a premium (shift differential) for second-shift labor. The unit price for purchased parts will drop by $.50 for units produced on both shifts because of discounts for buying larger quantities; units produced on one shift will have purchased parts cost of $20. The addition of a second shift will add 1600 units per month to capacity. The company sells the monitors for $55 to customers who sell them under their own brand names.

a.   Graph A.J.'s cost-volume-profit relationship for one shift only.

b.   Graph A.J.'s cost-volume-profit relationship for two shifts.

c.   How many units must A.J. produce and sell to cover its costs when the second shift is in place?

d.   At what volume does A.J. make a $24,000 profit per month?

e.   What happens to the company's profit if the selling price of monitors drops by $5 per unit? Be specific, using calculations to support your answers.

4) Junge Hardware Products makes nuts, bolts, and washers in the same facility.

                                  Nuts          Bolts          Washers

        Product Mix        0.4             0.4             0.2

        Selling Price/unit  $.07           $.09           $.03

        Variable cost/unit  $.03           $.06           $.0001

        Annual fixed costs are estimated at $2,500,000.

a. At what volume will Junge cover its costs, given the present mix?

b. At what volume will it report a $1,500,000 annual profit, given present mix?

c. If the price of a bolt is raised $.01, what happens to the volume required to make a $1,500,000 profit?

5)           Winken, Blinken, and Knod, Inc. is considering three different machines to grind contact lenses. The annual costs and operating costs are listed below.

                                            Annualized                    Variable

        System                         Fixed Costs                  Operating Costs   

        Manual Grinder             $9000                            $5.00/lens

        Automatic Grinder         $30,000                        $2.50/lens

        Computer-controlled

         Automatic Grinder       $50,000                        $0.75/lens

a.   If 10,000 lenses are needed, which option has the lowest cost?

b.   If 20,000 lenses are needed, which option has the lowest cost?

c.   At what volume(s) of lens production would you use each alternative? Show your answer in graph form.