# 2. The Retread Tire Company recaps tires. The fixed annual cost of the recapping operation is… 1 answer below »

2. The Retread Tire Company recaps tires. The fixed annual cost of the recapping operation is

\$60,000. The variable cost of recapping a tire is \$9. The company charges \$25 to recap a tire.

a. For an annual volume of 12,000 tires, determine the total cost, total revenue, and profit.

12000 x \$25.00 =\$3,000.00 total

\$3000.00 /9.00 = \$333.00 Profit

\$60,000 + 3,000.00 +333.00 = \$63,333.33 Total profit and revenue

b. Determine the annual break-even volume for the Retread Tire Company operation.

12000 x 25.00 =3,000.00 x 12 = \$36,000.00

4. Evergreen Fertilizer Company produces fertilizer. The company’s fixed monthly cost is \$25,000,

and its variable cost per pound of fertilizer is \$0.15. Evergreen sells the fertilizer for \$0.40 per

pound. Determine the monthly break-even volume for the company.

12,000 x .15 = \$1,800.00

\$4,800 – \$1,800.00 = 3,000.00

Graphically illustrate the break-even volume for the Evergreen Fertilizer Company determined in

Problem 4.

8. If the maximum operating capacity of the Retread Tire Company, as described in Problem 2, is

8,000 tires annually, determine the break-even volume as a percentage of that capacity. 8000 x .15 = \$1,200 and 8000 x .40 = \$3,200. Break even is \$ 3,200- \$1200 = \$2,000.00

10. If the maximum operating capacity of Evergreen Fertilizer Company described in Problem 4 is

120,000 pounds of fertilizer per month, determine the break-even volume as a percentage of capacity

120,000/100% = 1.200

12. If Evergreen Fertilizer Company in Problem 4 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?

120000 x .40 =\$ 4,800 and 120000 x .60 = 7,200.00 -4,800 = 6,720.00

14. 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 13? Break even would be \$7,000.00.

16. For the doll-manufacturing enterprise described in Problem 7, Andy Mendoza has determined that

\$10,000 worth of advertising will increase sales volume by 400 dolls. Should he spend the extra

\$10,000.00 / 400 = \$25.00 per doll. Yes.

18. The General Store at State University is an auxiliary bookstore located near the dormitories that

sells academic supplies, toiletries, sweatshirts and T-shirts, magazines, packaged food items, and

canned soft drinks and fruit drinks. The manager of the store has noticed that several pizza delivery

services near campus make frequent deliveries. The manager is therefore considering selling pizza

at the store. She could buy premade frozen pizzas and heat them in an oven. The cost of the oven

and freezer would be \$27,000. The frozen pizzas cost \$3.75 each to buy from a distributor and to

prepare (including labor and a box). To be competitive with the local delivery services, the manager

believes she should sell the pizzas for \$8.95 a piece. The manager needs to write up a proposal for

the university’s director of auxiliary services.\$27,000/ 8000 = 3.375. They would need to sell 8,000 T-Shirts.

20. Annie McCoy, a student at Tech, plans to open a hot dog stand inside Tech’s football stadium dur-

ing home games. There are seven home games scheduled for the upcoming season. She must pay

the Tech athletic department a vendor’s fee of \$3,000 for the season. Her stand and other equip-

ment will cost her \$4,500 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 department’s 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

break-even price Annie might charge?

2000 x 7 = 14,000 =\$4,900 earnings

22. The College of Business at Tech is planning to begin an online MBA program. The initial start-up

cost for computing equipment, facilities, course development, and staff recruitment and develop-

ment is \$350,000. The college plans to charge tuition of \$18,000 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? \$350,000/\$18,000 = \$19,000.00 x 18 =342 students need to be enrolled first quarter.

b. If the college can enroll 75 students the first year, how much profit will it make?\$19,000.00/75 =\$253.00 per student x 75 = \$18,999.00 profit.

c. The college believes it can increase tuition to \$24,000, but doing so would reduceenrollment to 35. Should the college consider doing this?

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