Reference no: EM132533380

Questions -

Q1) Suppose you sell hotdogs during the lunch hour to people downtown. During yesterday's lunch you sold a total of 60 hotdogs. You sell the hotdogs for $2.00 and it costs you $1.03 per hotdog. In addition, you have to pay rent for the equipment that keeps the hotdogs warm and for a daily business license. The cost of the business license is $5 and the rental fee is $50.

a) What is your total revenue?

b) What is your total variable cost?

c) What is your fixed cost?

d) What is your profit/loss?

e) What is your breakeven point?

f) Since you only sell hotdogs downtown for one hour a day should you continue to sell hotdogs downtown as a part time job? Explain your answer.

Q2) Carlos sells plastic sandals to beach goers. He sells these sandals at a price of $20. It costs him $75 a day to rent a stand on the beach. Carlos pays $14 per unit for his sandals. How many sandals must Carlos sell to breakeven?

Q3) Mr. Paul's Penguin Pies needs to purchase a new oven for their operations. They have two choices of ovens, a conventional oven (C1) or a convection oven (C2). The convection oven costs more than the conventional oven but has a lower operating cost since it can produce more pies. The conventional oven costs $35,000 and $0.53 per pie to operate. The convection oven costs $43,000 and $0.37 to operate. The pies sell for $2.50 each.

a) What is the breakeven point for the conventional oven?

b) What is the breakeven point for the convection oven?

c) Based on breakeven analysis which oven should Mr. Paul's Penguin Pies purchase? Explain your answer.

d) Using sensitivity analysis, at what point does it become more profitable to use the oven not selected in part c?

Q4) Suppose that you are selling file folders at $1.75 each. It costs you $1.06 for each file folder. Advertising the file folders in the paper costs $20. You expect to sell a total of 35 file folders. What is your margin of safety?

Q5) You are thinking of opening up a small flower shop to sell orchids, daisies, and roses. These will be live plants so there is no need for coolers to keep the flowers fresh. The rent for the shop will be $1,405 per month. In addition, the monthly cost for a business license is $156 and the equipment rental will be $2,645. Your prices, variable costs, and expected level of sales for the products are listed in the table below.

Orchids Daisies Roses

Price $20.00 $15.00 $25.00

Variable Cost $3.75 $3.00 $4.00

Quantity 200 80 120

a) What are the weights for each product?

b) What is the total number of flowers that you need to sell on a monthly basis to break even?

c) How many orchids must be sold to breakeven? Daisies? Roses?

d) If the quantities in the table are sold, what is your expected level of monthly profit?

e) Based on your answers above should you open the flower shop? Explain your answer.