PDC is a small real estate developer that builds only one style house.

The selling price of the house is $$115,000.$

Land for each house costs $$55,000$ and lumber, supplies, and other materials

run another $$28,000$ per house. Total labor costs are approximately $$20,000$ per house.

PDC leases office space for $$2,000$ per month. The cost of supplies, utilities, and

leased equipment runs another $$3,000$ per month.

The one salesperson of PDC is paid a commission of $$2,000$ on the sale of each house.

PDC has seven permanent office employees whose mothly salaries are provided below:

Employee Monthly Salary

President $10,000$

VP$,$ Development $6,000$

VP$,$ Marketing $4,500$

Project Manager $5,500$

Controller $4,000$

Office Manager $3,000$

Receptionist $2,000$

Tasks to complete:

Write the monthly cost, revenue and profit function.

What is the breakeven point for monthly sales of the houses?

PROBLEM DATA

Fixed cost $40,000$

Variable cost per unit $105,000$

Selling price per unit $115,000$

MODEL

Sales Volume $3$

Total Revenue $345,000$

Total Cost $355,000$

Total Profit $($Loss$)(10,000)$

break even point $=$ volume of sales for which total cost is equal to total revenue

tot cost $=$ fixed cost $+$ var cost$*$sales volume

tot revenue $=$ selling price$*$sales volume

fixed cost $+$ var cost$*$X $=$ selling price$*$X

fixed cost $=$ selling price$*$X $-$ var cost$*$X

fixed cost $=$ X$*($selling price $-$ var cost$)$

fixed cost$/($selling price $-$ var cost$)=$ X

# houses built$/$sold Total Cost

Total

Revenue

$0$

$1$

$2$

$3$

$4$

$5$

$6$

$7$

$8$

$9$

$10$

$11$

$12$

$13$

$14$

PROBLEM DATA Table $1$

Profit$/$loss

recalculated

when sales

volume vary

Fixed cost $40,00080,000$

Variable cost per unit $105,000$

Volume of sales

$($expected # of

houses sold$)1$

Selling price per unit $115,0002$

MODEL $3$

Sales Volume $124$

Total Revenue $1,380,0005$

Total Cost $1,300,0006$

Total Profit $($Loss$)80,0007$

Break even point

Table $2$

Break even point recalculated when fixed cost ranges from $20,000$ to $80,000$ by $$1,000$

$20,000$

$30,000$

$40,000$

$50,000$

$60,000$

$70,000$

$80,000$

fixed cost

Table $3$

Break even point recalculated when variable cost ranges from $100,000$ to $107,000$ by $$1,000$

variable cost

$100,000101,000102,000103,000104,000105,000106,000107,000$

Table $4$

Break even point recalculated when selling price ranges from $110,000$ to $150,000$ by $$5,000$

$110,000$

$115,000$

$120,000$

$125,000$

$130,000$

$135,000$

$140,000$

$145,000$

$150,000$

selling price per house

table $5$ profit$/$loss recalculated when selling price and fixed cost vary

selling price

$110,000115,000120,000125,000130,000135,000140,000145,000150,000$

$38,000$

$39,000$

$40,000$

$41,000$

$42,000$

$43,000$

$44,000$

$45,000$

$46,000$

$47,000$

$48,000$

$49,000$

$50,000$

fixed cost

PROBLEM DATA

Fixed cost $$40,000$

Variable cost per unit $$105,000$

Selling price per unit $$115,000$

MODEL

Sales Volume $8$

Total Revenue $$920,000$

Total Cost $$880,000$

Total Profit $($Loss$)$ $$40,000$

Use the Goal Seek $($available from the What$-$if tab$)$ to set profit$/$loss to zero by changing sales volume.

Assume that the company can only sell $3$ houses each month $($while the fixed and variables costs estimated hold$).$

How much would PDC need to increase the selling price per house to break even at $3$ houses?

Use Goal Seek to answer the question.

Assume that the company can only sell $2$ houses each month $($while the fixed and variables costs estimated hold$).$

How much would PDC need to increase the selling price per house to break even at $2$ houses?

Use Goal Seek to answer the question.