quantitative methods

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

$112500+$65000=$177,500

(ii). Total revenue; -total income the company makes from sales

Total revenue=Company charges per tire * annual sales volume

$25*15000 tires=$375000

(iii). Annual Profit; -total revenue – total cost

                                                                  Profit= $375,000- $177,500

                                                                                       =$197,500

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)

=$25000/ ($0.45-$0.20)

= 100000pounds

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:

       Fixed cost-$400000

      Variable cost-$10000

      Selling price-$20000

a). break-even volume; - fixed cost/ (selling price- variable cost)

                                                    $400000/ ($20000 - $10000) = 40students for the first year.

b). profit;

 Profit = total revenue –total cost

                            Total revenue- 80 students*$20000=$1600000

                            Total cost –fixed cost + variable cost

                                                   =$400000+$10000=$410000

    Profit =$1600000- $410000=$1,190,000

c).

      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.

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