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Written Assignment #5

Written Assignment #5 - Dustin Taylor FIN-301 June 2011...

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Dustin Taylor FIN-301 June 2011 Term Written Assignment #5 Chapter 19 Problem #2 a. Scale of operation #1 4Q = 3,000 + 2.8Q 1.2Q = 3,000 Q = 2,500 Scale of operation #2 4Q = 5,000 + 2.4Q 1.6Q = 5,000 Q = 3,125 b. Scale of operation #1 Sales - \$4 x 5,000 = \$20,000 Costs - \$3,000 + \$2.8(5,000) = \$17,000 Profit = \$3,000 Scale of operation #2 Sales - \$4 x 5,000 = \$20,000 Costs - \$5,000 + \$2.4(5,000) = \$17,000 Profit = \$3,000 c. Scale of operation #1 Cash receipts - \$8,000 Cash expenses - \$7,100 Yes. Cash receipts will cover cash expenses. Scale of operation #2 Cash receipts - \$8,000 Cash expenses - \$7,300 Yes. Cash receipts will cover cash expenses. d. Scale of operation #1 Year Unit Sales Sales in \$ Expenses in \$ Profit 1 4,000 \$16,000 \$14,200 \$1,800 2 5,000 \$20,000 \$17,000 \$3,000 3 6,000 \$24,000 \$19,800 \$4,200 4 7,000 \$28,000 \$22,600 \$5,400

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Scale of operation #2 Year Unit Sales Sales in \$ Expenses in \$ Profit 1 4,000 \$16,000 \$14,600 \$1,400 2 5,000 \$20,000 \$17,000 \$3,000 3 6,000 \$24,000 \$19,400 \$4,600 4 7,000 \$28,000 \$21,800 \$6,200 Management can justify selecting scale of operation #2 because it is more profitable over the 5 year span. If sales only peaked at 5,000, they should stick with scale of operation #1. Anything over 5,000 and scale of operation #2 is the way to go.
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