Question 1

Suppose you are the owner of a picture frame store and you wish to calculate how many frames you must sell to cover your fixed and variable costs at a given price. Let's assume that the demand for your frames is strong, so the average price customers are willing to pay for each picture frame is $120. Also, suppose your fixed costs (FC) total $32,000 (real estate taxes, interest on a bank loan, etc.) and unit variable cost (UVC) for a picture frame is $50 (labor, glass, frame, and matting). If your picture frame store sold 2,000 picture frames, what would your profit (or loss) be?

Accepted Answer

To calculate profit, we need to first calculate the total revenue and total cost.

Total revenue = Average price per frame x Number of frames sold
Total revenue = $120 x 2,000 = $240,000

Total cost = Fixed cost + Variable cost
Variable cost = Unit variable cost x Number of frames sold
Variable cost = $50 x 2,000 = $100,000
Total cost = $32,000 + $100,000 = $132,000

Profit = Total revenue - Total cost
Profit = $240,000 - $132,000 = $108,000

Therefore, the profit would be $108,000 if the picture frame store sold 2,000 picture frames. The answer is D.

Question 2

You are president of a manufacturer of small electric appliances. You want to reduce your break-even quantity. All things being equal, you can do this by

Accepted Answer

Reducing unit variable cost will lower the amount of revenue needed to cover all costs, thereby reducing the break-even quantity. This can be achieved through finding less expensive materials or suppliers, improving production processes, or other cost-cutting measures. Increasing quantity sold or fixed cost would both increase the break-even quantity, while reducing marginal revenue or increasing total cost would not directly impact it.

Question 3

Acme Shoe Co. sells heel replacement kits for men's shoes. It has fixed costs of $9 million and unit variable costs of $5 per pair. Acme is considering a switch from manual labor to an automated process. New equipment would cost an additional $4 million per year while lowering variable costs by $3 per shoe repair kit. How many kits would Acme have to sell at $17 per pair to make $2 million in profit in the next year with the automated process?

Accepted Answer

The answer of Acme Shoe Co. sells heel replacement kits...

Question 4

Each month, the owner of a car wash pays $2,500 in rent, $500 in utilities, $750 interest on the business loan, an insurance premium of $200, and $250 on advertising on local bus routes. A full-service car wash is priced at $10.50. Unit variable costs for the car wash are $7.50. At what level of revenue will the car wash break even?

Accepted Answer

To calculate the break-even point, we need to calculate the contribution margin per unit, which is the difference between the selling price per unit and the unit variable costs.

Contribution Margin = Selling Price - Unit Variable Cost
Contribution Margin = $10.50 - $7.50
Contribution Margin = $3

Next, we need to calculate the total fixed costs:

Total Fixed Costs = Rent + Utilities + Interest + Insurance + Advertising
Total Fixed Costs = $2,500 + $500 + $750 + $200 + $250
Total Fixed Costs = $4,200

Finally, we can calculate the break-even point in units:

Break-Even Point (in units) = Total Fixed Costs / Contribution Margin
Break-Even Point (in units) = $4,200 / $3
Break-Even Point (in units) = 1,400

Therefore, the car wash needs to wash and dry 1,400 cars per month to break even.

Now, we can calculate the revenue needed to break even:

Break-Even Revenue = Break-Even Point x Selling Price
Break-Even Revenue = 1,400 x $10.50
Break-Even Revenue = $14,700

Thus, the best choice is (C) $14,700.

Question 5

Ampro-Mag is a small company that makes materials for safely controlling hazardous spills of all kinds. It sells these items as a neutralizing kit priced at $100. The costs of the materials that go into each kit are $45. It costs $5 in labor to assemble a kit. The company has monthly expenses of $1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising in trade journals, and $3,500 for the monthly salary of its owner. What is Ampro-Mag's monthly break-even point in terms of number of neutralizing kits sold?

Accepted Answer

To calculate the break-even point, we need to compute the total monthly expenses and divide them by the contribution margin per unit.

Total monthly expenses = $1,000 + $200 + $500 + $3,500 = $5,200

Contribution margin per unit = Selling price per unit - Variable cost per unit 
Selling price per unit = $100 
Variable cost per unit = $45 + $5 = $50 
Contribution margin per unit = $100 - $50 = $50

Break-even point (in units) = Total monthly expenses / Contribution margin per unit 
Break-even point (in units) = $5,200 / $50 = 104

Therefore, Ampro-Mag's monthly break-even point in terms of neutralizing kits sold is 104 kits (option C).

Question 6

The break-even point (BEP) = [Fixed cost ÷ (__________ - Unit variable cost)].

Accepted Answer

The answer of The break-even point (BEP) = [Fixed cost...

Question 7

A graphic presentation of the break-even analysis that shows when total revenue and total cost intersect to identify profit or loss for a given quantity sold is referred to as a

Accepted Answer

A break-even chart is specifically designed to visually display the break-even analysis, showing the intersection between total revenue and total cost at the point of neither profit nor loss. This chart allows managers to easily identify the quantity of units they must sell to break even and make informed decisions about pricing and production. A Gantt chart is used for project management scheduling, a demand curve shows the relationship between price and quantity demanded, ROI analysis calculates return on investment, and cross-tabulation is a statistical analysis method used to determine if there is a relationship between two variables.

Question 8

The break-even point (BEP) = [__________ ÷ (Unit price - Unit variable cost)].

Accepted Answer

The break-even point formula requires the fixed cost as the numerator and the difference between the unit price and unit variable cost as the denominator. The other options are not relevant to the formula.

Question 9

A break-even chart is a graphic presentation

Accepted Answer

A break-even chart is a visual representation of the break-even analysis, which determines at what quantity of sales total revenue equals total costs. The point at which they intersect on the chart represents the break-even point, where there is no profit or loss. Above that point is profit, and below it is a loss.

Question 10

You have been asked to calculate the break-even point for a new line of T-shirts. The selling price will be $25 per shirt. The labor cost is $5 per shirt. The administrative costs of operating the company are estimated to be $60,000 annually, and the sales and marketing expenses are $20,000 a year. Additionally, the cost of materials will be $10 per shirt. What is the break-even quantity?

Accepted Answer

The answer of You have been asked to calculate the...

Question 11

Washburn Guitars markets its guitars to four distinct market segments. The firm's one-of-kind custom instruments are targeted at

Accepted Answer

Washburn Guitars markets its one-of-kind custom instruments to stars and collectors, indicating that this is a high-end and exclusive market segment.

Question 12

Acme Shoe Co. sells heel replacement kits for men's shoes. It has fixed costs of $6 million and unit variable costs of $5 per kit. Acme would like to earn a profit of $2 million. How many kits must Acme sell at a price of $15?

Accepted Answer

To find the number of kits needed to achieve a $2 million profit, use the formula: (Fixed Costs + Desired Profit) / (Selling Price per Unit - Variable Cost per Unit). Here, it is ($6,000,000 + $2,000,000) / ($15 - $5) = 800,000 kits.

Question 13

A recently graduated business student decided to open a small Internet café serving a variety of unusual nonalcoholic beverages from around the world. He carefully used all the pricing formulas he learned in school and set a goal to break even the first six months and make a moderate profit for the next six months, at which time he would review his pricing strategies. Within a week after opening, every seat was filled and he had to replenish his beverage orders several times. At his six-month review, he was devastated to find that despite huge sales, he had actually lost money. He realized it wasn't his math that was wrong; he forgot to include monthly expenses such as toilet paper, paper towels, and hand soap in his calculations. These costs should have appeared as __________ in his break-even analysis.

Accepted Answer

The costs of toilet paper, paper towels, and hand soap are variable costs because they vary with the volume of sales. In break-even analysis, all variable costs should be taken into account to determine the point at which revenue equals total costs. Fixed costs are expenses that do not vary with the volume of sales, such as rent or salaries. Marginal costs refer to the additional cost incurred by producing one more unit. Overhead costs are a subset of fixed costs that are associated with operating a business, such as utilities or insurance. Sunk costs refer to costs that have already been incurred and cannot be recovered.

Question 14

Tim Marlow, the owner of The Clock Works, wanted to know how many clocks he must sell in order to cover his fixed cost at a given price. Marloq knew that he had total fixed costs of $20,000 for equipment, taxes, and a bank loan. He also had a unit variable cost of $20 per clock for labor and materials. If the price Marlow charges for each of his clocks is $40, what is his break-even point quantity?

Accepted Answer

The answer of Tim Marlow, the owner of The Clock...

Question 15

Acme Shoe Co. sells heel replacement kits for men's shoes. It has fixed costs of $6 million and unit variable costs of $5 per kit. Suppose a consultant tells Acme that it can sell 750,000 heel repair kits. What price must Acme charge to achieve a profit of $2.5 million?

Accepted Answer

The answer of Acme Shoe Co. sells heel replacement kits...

Question 16

The owner of a small restaurant that sells takeout fried chicken and biscuits each month pays $2,500 in rent, $500 in utilities, $750 interest on his loan, insurance premium of $200, and $250 on advertising on local buses. A bucket of chicken is priced at $9.50. Unit variable costs for the bucket of chicken are $5.50. How many buckets of chicken does the restaurant need to sell to break even each month?

Accepted Answer

To break even, the total revenue must be equal to the total cost. Let's set up the equation:
Total Cost = Fixed Costs + Variable Costs
Total Cost = $2,500 + $500 + $750 + $200 + $250 + ($5.50 x Q)
Q = number of buckets of chicken
Total Cost = $4,450 + ($5.50 x Q)
Total Revenue = Price per bucket x Q
Total Revenue = $9.50 x Q
To break even:
Total Revenue = Total Cost
$9.50 x Q = $4,450 + ($5.50 x Q)
$4.00 x Q = $4,450
Q = 1,050
Therefore, the restaurant needs to sell 1,050 buckets of chicken to break even each month.

Question 17

Suppose you are the owner of a picture frame store and you wish to calculate how many frames you must sell to cover your fixed and variable costs at a given price. Let's assume that the demand for your frames is strong, so the average price customers are willing to pay for each picture frame is $120. Also, suppose your fixed costs (FC) total $32,000 (real estate taxes, interest on a bank loan, etc.) and unit variable cost (UVC) for a picture frame is $40 (labor, glass, frame, and matting). What is the quantity of picture frames you will need to sell to break even?

Accepted Answer

The answer of Suppose you are the owner of a...

Question 18

Jane Westerlund owns a picture-framing store, The Caplow Co. The average price she receives for a framed picture is $120. This price must cover her costs for a typical framed picture, which consists of $5 for glass, $2 for matting, $13 for the frame, and $30 for the labor involved. She must also cover monthly expenses of $1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising, and $3,500 for her salary. Assuming there is no change in price or the quantity demanded, if Westerlund wants to increase her advertising expenses to a total of $1,000 (a $500 increase), this would cause total costs to __________ and the break-even quantity to __________.

Accepted Answer

Increasing advertising expenses will cause total costs to increase because advertising is one of the monthly expenses that Jane Westerlund must cover. This means that to maintain profitability, she will have to sell more pictures to cover her higher costs, leading to an increase in the break-even quantity. Therefore, the correct choice is B.

Question 19

A primary reason for Washburn Guitars' success is

Accepted Answer

By developing product lines at different price points for different market segments, Washburn Guitars is able to cater to a wide range of customers while still maintaining consistent quality. This helps them compete with other guitar manufacturers and appeal to a variety of players with varying budgets. Additionally, by offering different models and styles, they are able to create a diverse product line that can appeal to different musical genres and styles.

Question 20

Suppose you are the owner of a picture frame store and you wish to calculate how many frames you must sell to cover your fixed and variable costs at a given price. Let's assume that the demand for your frames is strong, so the average price customers are willing to pay for each picture frame is $120. Also, suppose your fixed costs (FC) total $32,000 (real estate taxes, interest on a bank loan, etc.) and unit variable cost (UVC) for a picture frame is $40 (labor, glass, frame, and matting). If your picture frame store sold 2,000 picture frames, what would your profit (or loss) be?

Accepted Answer