1. Smiths, a regional supermarket based in Utah, recently purchased a manufacturing facility. While they have produced store-branded food products for some time, their new facility will allow them to produce and sell store-branded non-food items. Recent research has shown that parents are increasingly purchasing school supplies where they grocery shop (whether that be at a store like Target or Walmart or a grocery store like Smiths). As such, Smiths is looking into manufacturing a line of scissors for supermarket distribution. It estimates its fixed cost to be $500 and its variable cost to be $0.50 per unit. Selling price is expected to be $0.75 per unit.
   1. Find Smiths break-even point in units sold.
   2. What is the total revenue at the breakeven point?
2. An electronics manufacturing firm is currently manufacturing resistors that have a variable cost of $0.50 per unit and a selling price of $1.00 per unit. Fixed costs are $100,000. Current volume is 300,000 units. The firm can substantially improve the product quality by adding a new piece of equipment at an additional fixed cost of $60,000. Variable cost would increase to $0.60, but volume should jump to 500,000 units due to the higher-quality product.
   1. Should the firm buy the new equipment?
   2. What is the minimum price the company would have to charge in order for the new equipment to be worth purchasing (assuming the higher or lower price doesnt affect the 500,000 unit volume)?
3. (Note: this problem is difficult. You must attempt it to get credit, but dont spend hours agonizing over the correct answer, if you struggle. As a small hint, some of your variable costs vary with time rather than units sold. They operate the same, however. $/hour x # of hours = cost, for that type of cost; as opposed to $/unit x $ of units = cost.) Pepe, the owner of Pepes Pizza in New Haven, CT, is considering a new oven in which to bake the restaurants signature pizza. Oven type A can handle up to 20 pizzas per hour. The oven costs $20,000, including purchase price, insurance, and other fixed costs. The ovens operating costs are $40 per hour for electricity and fuel. Oven B is larger and can handle up to 40 pizzas per hour. The fixed costs are $30,000 and the operating costs are $50 per hour. The pizza sells for $14 each. The cost of ingredients and labor is $5 per pizza.
   1. For each oven, how many pizzas does Pepe have to sell per hour to avoid losing money on oven operating costs?
   2. At max operating capacity, what are the breakeven sales quantities?
   3. At max operating capacity, how many pizzas must Pepe sell for Oven B to be preferred to Oven A?
   4. At what operating capacity (in pizzas per hour) would Oven B have to be used at to be more profitable per unit sold (ignoring fixed costs)?
   5. At the capacity calculated in question d, how many total hours will the oven have to operate to break even on the total costs?