1. (Supplement A) Richard Winchester, owner of Winchester Products, is considering whether to produce a new product. He has considered the operations requirements for the product as well as the market potential. Richard estimates the fixed costs per year to be $40,000 and variable cost for each unit produced to be approximately $50.

a) If Richard sells the product at a price of $70, how many units of product does he have to produce and sell in order to break even? Solve both graphically and algebraically.
b) Richard forecasts sales of 3,000 units if the selling price is set at $70, and 3,800 units if the selling price is set at $65. Which pricing strategy would you recommend to Richard? Why?

Solution Preview

Please see the attachment for the detailed explanation of the answer. The Excel file contains the graphical determination of break-even point.

Solution

a) We can find the break-even point both graphically and algebraically.
It is given that,
Fixed cost, FC = $40,000
Variable cost per unit, VC = $50
Selling Price per unit, SP = $70
Let Q denote the number of units sold. Then the total cost is
Total cost = FC + (VC)Q = 40000 + 50Q
and the total revenue is
Revenue = (SP)Q = 70Q

Since revenue equals ...

Solution Summary

The solution explains the graphical and algebraic method for determination of the break-even point.

... a graph showing the linear trends and the breakeven point). ... The break-even point is (184, 131.4). ... solution helps with a mathematics and algebra equation problem ...

... 4Q 11Q = 55 Q = 5 I must sell 5 pizzas to break even. ... My breakeven point is 5 pizzas. This solution uses algebra to find a pizza business' breakeven price and ...

Math problems:Algebra, Economics and some Calculus. Please see attached. ... 7. Find the point where the two lines meet. ... Find the breakeven values. ...

... in the form p = mx + b. (Hint: Write an equation using two points in the ... 2. The break even values for a profit model are the values for which you earn $0 ...

... room or buy things at the market involves some aspects of algebra. Even figuring out how many tickets need to be sold to a achieve a break-even point can make ...

... Problem 30 a. [(EBIT -26-30)(1-.4) - 2] /10 = [(EBIT -26)(1-.4) -2)] / 14 After the algebra, you should get an answer ... Answer a Computation of Breakeven Point. ...

... Allows breakeven point analysis. ... Contribution Margin must equal Net Income for the company to break even. ... Less Fixed Expense or any other of the 4 data points. ...

... Use algebra to justify your answer. ... b) For break-even point, c(x) = r(x) 1.25x + 1250 = 30x => 28.75x = 1250 => x = 1250/28.75 = 43.48 --Answer. ...