Q1. THE RETREAD TIRE COMPANY
a). fixed annual cost $65000
Variable cost $7.5
Company charges $25
(i).Total annual variable cost; variable cost * annual sales volume
$7.5 * 15000 tires=$112,500
Total cost =variable cost + fixed cost
(ii). Total revenue; -total income the company makes from sales
Total revenue=Company charges per tire * annual sales volume
(iii). Annual Profit; -total revenue – total cost
Profit= $375,000- $177,500
Q2. EVERGREEN FERTILISER COMPANY
Fixed monthly cost=$25000
Variable cost per pound =$0.20
Selling price per pound =$0.45
Determine the monthly break even volume;
Break even sales volume = total fixed cost/ (selling price- variable cost per unit)
Q3. Evergreen changes selling price from $0.45 to $0.55
= $25000/ ($0.55-$0.20) = 71428.57143 pounds
The break-even volume reduces by 28571.42857 pounds during that month.
Q4. EVERGREEN increases its advertising expenditure per year to $ 10000
Advertising expenditure per month after the increase = $10000/12months=$833.33
New Fixed monthly cost =$(25000+833.33) =$25833.33
New break-even volume= $25833.33/ ($0.45-$0.20) = 103,333.32pounds
The break-even volume increases by 3333.32pounds.
Q5. Mc coy’s hot dog stand
Fixed cost -$3000+$3500=$6500
Variable cost per hotdog =$0.40
Sales volume for the season =1500 hotdogs *6 games= 9000 hotdogs
a). price to charge to break-even
Selling price = fixed cost/break-even volume+ (variable cost)
($6500/$9000)+ $0.40) = $1.12
b). the fixed cost might either increase therefore increasing the breakeven volume, also causing an increase in the break-even price. If the fixed cost reduce their will be a decrease in the breakeven volume and therefore reducing the break-even price.
If the variable cost to produce one hotdog increases during the season the break-even volume and the price per hotdog also increases, if the variable cost drops then the break-even price and volume also reduces.
Q6. ONLINE MBA PROGRAM:
a). break-even volume; - fixed cost/ (selling price- variable cost)
$400000/ ($20000 - $10000) = 40students for the first year.
Profit = total revenue –total cost
Total revenue- 80 students*$20000=$1600000
Total cost –fixed cost + variable cost
Profit =$1600000- $410000=$1,190,000
Increment on tuition to $25000
Enrolment reduces to 50 students.
First determine the effect of this change on the variable cost;
Variable cost=sales price-(fixed cost/break even volume)
=$25000-($400000/ 50 students) =$17000
The college should consider the increment because it reduces the variable cost incurred by the college to $17000.