Assume you have decided to buy an advertisement in the local newspaper to publicize

your new photography business. The cost of the ad is $6700. You have decided to charge

$135 per photo shoot, and your variable costs are $45.

a. What is your contribution per unit?

b. How many photo shoots do you need to break even on the cost of the ad?

c. What is your break-even point if you charge $155 per shoot?

2. A soft drink manufacturer opened a new manufacturing plant in the Midwest. The total

fixed costs are $70 million. It plans to sell soft drinks for $6.00 for a package of 10 12-

ounce cans to retailers. Its variable costs for the ingredients are $3.00 per package.

a. Calculate the break-even volume.

b. What would the break-even be if the firm wanted to make $22 million in profit?

c. What would happen to the breakeven point if the fixed costs decreased to $61

million?

d. What would happen to the breakeven point if the variable costs increased to $3.50

due to increases in commodity costs (with fixed costs of $61 million)?

3. Zinc Energy Resources Co., a new division of a major battery manufacturing company,

recently patented a new battery that uses zinc-air technology. The unit costs for the zinc-

air battery are as follows: The battery housing is $6, materials are $7.25, and direct labor

is $6.75 per unit. Retooling the existing factory facilities to manufacture the zinc-air

batteries amounts to an additional $1.4 million in equipment costs. Annual fixed costs

include sales, marketing, and advertising expenses of $1.8 million; general and

administrative expenses of $1.1 million; and other fixed costs totaling $2.8 million.

Please answer the following questions.

a. What is the total per-unit variable cost associated with the new battery?

b. What are the total fixed costs for the new battery?

c. If the price for the new battery was set at $34, what would the breakeven point

be?

4. Smith Inc. produces and sells bicycles. They are expecting to sell 220,000 units this year.

Their variable costs are $74 per unit and their fixed costs are $767,000.

a. If they would like to earn 23% per unit, at what price should they sell the

bicycles?

b. What price should they set to earn 23% if the fixed costs were $2,100,000?

c. What if the fixed costs were $2,100,000 and they want to earn 38% per unit?