Week 3 Chapter Questions - 9.06.11

Operations and Supply Chain Management (The Mcgraw-Hill/Irwin Series)

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Chapter 6: Problem 1: Owen Conner works part-time packaging software for a local distribution company in Indiana. The annual fixed cost is $10,000 for this process, direct labor is $3.50 per package, and material is $4.50 per package. The selling price will be $12.50 per package. How much revenue do we need to take in before breaking even? What is the break-even point in units? Solution: Selling Price p.u = $12.50 Less: Material p.u = $ 4.50 Less: Direct labor = $3.50 Contribution $4.50 Fixed cost = $10,000 Break Even (units) = $10,000/$4.50 = 2,223 units Break Even Revenue = 2,223*12.50 = $27,787.50 Problem 6: A book publisher has fixed costs of $300,000 and variable costs per book of $8.00. The book sells for $23.00 per copy. a. How many books must be sold to break even? Contribution p.u = $23-$8 = $15 Fixed cost = $300,000 Break even units = 300,000/15 = 20,000 units b. If the fixed cost increased, would the new break-even point be higher or lower? If the fixed cost will be increased the breakeven point will be higher as the firm
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Week 3 Chapter Questions - 9.06.11 - Chapter 6: Problem 1 &...

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