Chapter One SOLUTIONS 1a.
b.
2a.
b.
3a.
b. 4.
5. Revenue, cost, and profit ($1,000s)
250 200
Total Revenue
Break-even point
150 100
Total Cost
50
cf
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 Volume, (v)
6. 150 125
(lbs.)
100
Total Revenue
Break-even point
75 50
Total Cost
25
cf
0 25
50
75 100 125 150 Volume, ($1,000s)
175
200
cf $25, 000 7. v = p − c = 30 − 10 = 1, 250 dolls v 8.
9.
10.
11.
12.
13.
14.
15.
16. v =
cf p − cv
=
35, 000 = 1, 750 30 − 10
The increase in fixed cost from $25,000 to $35,000 will increase the break-even point from 1,250 to 1,750 or 500 dolls, thus, he should not spend the extra $10,000 for advertising. 17. Original break-even point (from problem) 7 = 1,250 New break-even point: v =
cf p − cv
=
17, 000 = 1062.5 30 − 14
Reduces BE point by 187.5 dolls. 18. = 24
19. = 175 20. = 6.50