MAT540 Week 1 Homework

MAT540
Week 1 Homework
Chapter 1
1. The Retread Tire Company recaps tires. The fixed annual cost of the recapping operation is
$55,000.The variable cost of recapping a tire is $8.The company charges $21 to recap a tire.
a. For an annual volume of 10,000 tires, determine the total cost, total revenue, and profit.
b. Determine the annual break-even volume for the Retread Tire Company operation.
2. Evergreen Fertilizer Company produces fertilizer. The companys fixed monthly cost is $30,000, and
its variable cost per pound of fertilizer is $0.16. Evergreen sells the fertilizer for $0.40 per pound.
Determine the monthly break-even volume for the company.
3. If Evergreen Fertilizer Company in Problem 2 changes the price of its fertilizer from $0.40 per pound
to $0.60 per pound, what effect will the change have on the break-even volume?
4. If Evergreen Fertilizer Company increases its advertising expenditures by $14,000 per year, what
effect will the increase have on the break-even volume computed in Problem 2?
5. Annie McCoy, a student at Tech, plans to open a hot dog stand inside Techs football stadium during
home games. There are seven home games scheduled for the upcoming season. She must pay the
Tech athletic department a vendors fee of $2,500 for the season. Her stand and other equipment
will cost her $3,100 for the season. She estimates that each hot dog she sells will cost her $0.35. She
has talked to friends at other universities who sell hot dogs at games. Based on their information
and the athletic departments forecast that each game will sell out, she anticipates that she will sell
approximately 2,000 hot dogs during each game.
a. What price should she charge for a hot dog in order to break even?
b. What factors might occur during the season that would alter the volume sold and thus the breakeven price Annie might charge?
6. The College of Business at Kerouac University is planning to begin an online MBA program. The initial
start-up cost for computing equipment, facilities, course development, and staff recruitment and
development is $360,000.The college plans to charge tuition of $17,000 per student per year.
However, the university administration will charge the college $12,000 per student for the first 100
students enrolled each year for administrative costs and its share of the tuition payments.
a. How many students does the college need to enroll in the first year to break even?
b. If the college can enroll 75 students the first year, how much profit will it make?
c. The college believes it can increase tuition to $22,000, but doing so would reduce enrollment to