HERES THE GUIDE FOR MY QUESTIONS

Model Development Models Used in Economics Cost function C (x) 3?- is the cost of producing x units of the commodity. Revenue function R(x) )'v' is the revenue obtained from selling x units of the commodity R(x) = {41bit}. Prot function P(x) 3* is the prot obtain frorn selling x units of the commodity P(x) = R(x) C(x). In the commercial section of the newspaper you come across an ad for a pizza delivery business for sale. Upon inquiry, you discover that the owner, who wants to sell the business and then retire, has four salaried employees and owns two delivery vehicles. He invites you to look through his books, where you acquire the following information: Business: Employees: $85 per month $5,000 per month Phone Owner's salary Employee salaries and premiums $2,000 per month each $3,600 per year Business insurance Building lease $2,000 per month Delivery Vehicles: $1,200 per year per vehicle Operations: Car insurance Fuel $1,125 per month per vehicle Pizza ingredients, materials, and $19,125 per month $225 per month per vehicle packaging $9 per pizza Oil changes $562.50 per month per vehicle Selling price of pizza 4,500 per month Vehicle maintenance and repairs Average number of pizzas soldBREAKEVEN POINT Fixed Cost = $638.03 Variable Cost = $6.43 forecasted n = 430 Price per unit = $10 BREAKEVEN (IN UNITS) BREAKEVEN (IN DOLLARS) Fixed cost Fixed cost Breakeven(in sales) = Contribution rate BEP = Selling Price - Variable Cost 638.03 Breakeven(in sales) = = $1787.20 $638.03 0.357 BEP = 178.72 $10 - $6.43 Selling Price - Variable cost BEP = 179 units Contribution rate = -* 100 Selling Price 10 - 6.43 Contribution rate = * 100% = 35.7% 10BREAKEVEN POINT Break-Even Points Need to Be Compared the breakeven number by itself, whether in units or dollars, is"-.l meaningless I' - compare it against some other quantity (or quantities) to determine the feasibility of the number you have produced Break-Even Points Are Not Green Light breakeven point alone cannot tell you to do something, but it can tell you not to do something. answers 1. A company is planning to manufacture a certain product. The fixed cost will be Php5oo,000 and it will cost Php4oo to produce each product. Each will be sold for Php600. a. Determine the costvolume model for producing x [3(1) 2 500000 + 4001 units of each product. b. Determine the revenue model for producing x units of each product. RU?) = 600;: (2. Determine the protvolume model for producing x Phat] = 2003: _ 500000 units of each product. d. How many units must be sold in orderto break even? 2500 units Note: in order to breakeven, set P{x) = a answers 2. A buko pie store can produce buko pie at Php95. It is estimated that if the selling price of the buko pie is x pesos, then the number of buko pie sold each day is 1000-X. Questions Answers a. Determine the cost-volume model for producing C(x) = 95(1000 -x) buko pie. b. Determine the revenue model for producing buko R(x) = x(1000 - x) pie. c. Determine the profit-volume model for producing buko pie. P(x) = (1000 - x)(x-95) d. If the selling price is Php160, how much will be the daily profit? Php54600answers 3. Nowlin Plastics produces a line of cell phone covers. Nowlin's bestselling cover is its Viper model, a slim but very durable black and gray plastic cover. The annual fixed cost for the Viper cover is $234,000. This xed cost includes management time, advertising, and other costs that are incurred regardless of the number of units eventually produced. In addition, the total variable cost, including labor and materiaI costs, is $2 for each unit produced. m Answers a. Determine the costvolume model for producing x C(x] = 234000 + 2.1: units of Viper Mode]- b. Compute the total cost, if they produce 10000 $254000 units. examples Nowlin is considering outsourcing the production of some products for next year, including the Viper. Nowlin has a bid from an outside firm to produce the Viper for $3.50 per unit. Although it is more expensive per unit to outsource the Viper ($3.50 versus $2.00), the fixed cost can be avoided if Nowlin purchases rather than manufactures the product. the product. The exact demand for Viper for next year is not yet known. Nowlin would like to compare the costs of manufacturing the Viper in house to those of outsourcing its production to another finn, and management would like to do that for various production quantities. How much is the total outsource cost to produce Toooo units? $35000 Model Development COST AND VOLUME MODELS The cost of manufacturing or producing a product is a function of the volume produced. COST = FIXED COST + VARIABLE COST C(x) = FC + VC(x) Fixed cost (FC) - portion of the total cost that does not depend on the production volume - remains the same no matter how much is produced Variable cost (VC) - portion of the total cost that dependsTotal Costs You are considering starting your own home-based Internet business. After a lot of research, you have gathered the following financial information: Dell computer $214.48 monthly lease payments Office furniture (desk and chair) $186.67 monthly rental Shaw high-speed Internet connection $166.88 per month Your wages $30 per hour Utilities $13 per month plus $0.20 per hour usage Software (and ongoing upgrades) $20.00 per month Business licenses and permits $27.00 per month Google click-through rate $10.00 per month + $0.01 per click payable as total clicks per sale Generating and fulfilling sales of 430 units involves 80 hours of work per month. Based on industry response rates, your research also shows that to achieve your sales you require a traffic volume of 34,890 Google clicks. On a monthly basis, calculate the total fixed cost, total variable cost, and unit variable cost.FIXED COSTS Fixed Costs Dell computer $214.48 Office furniture $186.67 Shaw high-speed Internet connection $166.88 Utilities (blended cost) $13.00 only Software $20.00 Business licenses / permits $27.00 Google click (blended cost) $10.00 TOTAL FIXED COSTS TFC = $638.03VARIABLE COSTS Variable Costs Wages $30.00 per hour Utilities (blended cost) $0.20 per hour Google click (blended cost) $0.01 per click TOTAL VARIABLE COST TVC = ($30.00 x hours ) + ($0.20 x hours ) + ($0.01 x Google clicks ) = ($30.00 x 80) + ($0.20 x 80) + ($0.01 x 34, 890) = $2, 764.90 UNIT VARIABLE COST $2, 764.90 VC = = $6.43 430Model Development NET INCOME - amount of money left over after all costs are deducted from all revenues If NET INCOME is positive, then the business is PROFITABLE If NET INCOME is negative, then the business suffers a LOSS TOTAL REVENUE - entire amount of money received by company for selling its product - calculated by multiplying the quantity sold by the selling priceModel Development PROFIT AND VOLUME MODELS One of the most important criteria for management decision making is prot. Total profit = Total revenue - Total coat PM = RM - C(K) Model Development From the previous example on Home-based Internet business wel identified the following: " Fixed Cost = $638.03 Variable Cost = $6.43 forecasted n = 430 Based on these numbers, calculate the following: a. total revenue at the forecasted output if price per unit is $10 b. total cost at the forecasted output c. total revenue at the forecasted output d. total net income if price per unit is $10 l BREAKEVEN ANALYSIS - is the analysis of the relationship between costs, revenues, and net income " - sole purpose is to determine the point at which total revenue equals total cost. BREAK EVEN AN ALYS | 5 3 man HEP TIC-IX] FCOK) O I B REAK-EVEN POINT is the level of output (in units or dollars) at which all costs are paid but no profits are earned, resulting in a net income equal to zero