Problem 1

Assume that Tyson Company sells a single product with the following cost and price data: Total fixed costs $100 Variable cost per unit $5.00 Selling price per unit $10.00 The relevant range for units sold is from zero units to 60 units.

Instructions

Using the above information, do the following:

a. Write the equation for the fixed cost line (curve). Explain what it means.

b. Write the equation for the revenue curve. Explain what it means.

c. Write the equation for the total cost curve. Explain what it means.

d. Write the equation for break-even units and solve.

e. What is the break-even revenue? Show your calculations.

f. Develop a CVP graph. Make sure your break-even on the graph matches your calculation. Use graph paper or Excel. I. In developing your graph, pick some key points. The equations developed above can help you in this regard.

Problem 2

Seprod Manufacturing makes aluminum cans. The following cost and price data apply to the company's operations: Sales price per can is $28.00 Variable cost is $12.00 per can The fixed cost is $30,000. The company has a desired profit of $40,00

Instructions

1) Write the equation for the fixed cost line (curve). Explain what it means.

2) Write the equation for the revenue curve. Explain what it means.

3) Write the equation for the total cost curve. Explain what it means.

4) Write the equation for break-even units and solve.

5) What is the break-even revenue? Show your calculations.

6) Develop a CVP graph. Make sure your break-even on the graph matches your calculation. a. In developing your graph, pick some key points. The equations developed above can help you in this regard.

7) Calculate the desired number of units necessary to achieve a desired profit of $40,000.

8) What is the margin of safety - in other words, by how much can sales decrease before the company runs into financial trouble? Show calculations.

9) The marketing manager believes that reducing the sales price to $25.00 and increasing fixed cost by $12,000 to $42,000 will increase profitability. Is he correct?

a. Compute break-even units

b. Compute break-even in sales dollars

c. Construct a CVP graph. Use graph paper or Excel.