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Krajewski SN Supplement A - Supplement A Decision Making A...

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Supplement A Decision Making A. Break-even Analysis 1. Evaluating services or products a. Assumptions and definitions b. Break-even quantity: Algebraic approach pQ = F + cQ c p F Q - = c. Break-even quantity: Graphic Approach with Example A.1 d. Sensitivity analysis with Example A.2 SN:A-1
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SN:A-2 Supplement A Decision Making 2. Application A.1: Break-Even Analysis for Evaluating Products or Services The Denver Zoo must decide whether to move twin polar bears to Sea World or build a special exhibit for them and the zoo. The expected increase in attendance is 200,000 patrons. The data are: Revenues per Patron for Exhibit Gate receipts $4 Concessions $5 Licensed apparel $15 Estimated Fixed Costs Exhibit construction $2,400,000 Salaries $220,000 Food $30,000 Estimated Variable Costs per Person Concessions $2 Licensed apparel $9 Is the predicted increase in attendance sufficient to break even? a. Graphical solution of Denver Zoo problem Q TR = pQ TC = F + cQ 0 250,000 Where p = F = c = 0 1 2 3 4 5 6 7 0 50 100 150 200 250 Q (thousands of patrons)
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Krajewski SN Supplement A - Supplement A Decision Making A...

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