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Calculating BEP, Cost and Profit levels

1. Preliminary plans are underway for construction of a new stadium for a major league baseball team. City officials question the number and profitability of the luxury corporate boxes planned for the upper deck of the stadium. Corporations and selected individuals may purchase a box for $300,000. The fixed construction cost for the upper-deck area is estimated to be $4,500,000, with a variable cost of $150,000 for each box constructed.
a. What is the breakeven point for the number of luxury boxes in the new stadium?
b. Preliminary drawings for the stadium show that space is available for the construction of up to 50 luxury boxes. Promoters indicate that buyers are available and that all 50 could be sold if constructed. What is your recommendation concerning the construction of luxury boxes? What profit is anticipated?

2. Micromedia offers computer training seminars on a variety of topics. In the seminars each student works at a personal computer, practicing the particular activity that the instructor is presenting. Micromedia is currently planning a two-day seminar on the use of Microsoft Excel in statistical analysis. The projected fee for the seminar is $600 per student. The cost for the conference room, instructor compensation, lab assistants, and promotion is $9600. Micromedia rents computers for its seminars at a cost of $60 per computer per day.
a. Develop a model for the total cost to put on the seminar. Let x represent the number of students who enroll in the seminar.
b. Develop a model for the total profit if x students enroll in the seminar.
c. Micromedia has forecasted an enrollment of 30 students for the seminar. How much profit will be earned if its forecast is accurate?
d. Compute the breakeven point.

Solution Preview

1. Preliminary plans are underway for construction of a new stadium for a major league baseball team. City officials question the number and profitability of the luxury corporate boxes planned for the upper deck of the stadium. Corporations and selected individuals may purchase a box for $300,000. The fixed construction cost for the upper-deck area is estimated to be $4,500,000, with a variable cost of $150,000 for each box constructed.

a. What is the breakeven point for the number of luxury boxes in the new stadium?
Fixed Cost=F=$4,500,000
Variable Cost per unit=V=$150,000
Price per unit=P=$300,000
Break even ...

Solution Summary

There are two problems related to CVP analysis. Solutions to these problems depict the methodology to calculate the total cost, total revenue, break even point and profit.

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