ABA-201 MANAGEMENT SCIENCE-1

PTELIM PERIOD
PRACTICAL PROBLEMS (COST-VOLUME-PROFIT ANALYSIS)

Problem#1
The owner of Old-Fashioned Berry Pies, S. Simon, is contemplating adding a
new line of pies, which will require leasing new equipment for a monthly
payment of $6,000. Variable costs would be $2.00 per pie, and pies would
retail for $7.00 each.
a) How many pies must be sold in order to break even?
b) What would the profit (loss) be if 1,000 pies are made and sold in a
month?
c) How many pies must be sold to realize a profit of $4,000?

Problem#2
Manager has the option of purchasing one, two, or three machines. Fixed
costs and potential volumes are as follows:

Variable cost is $10 per unit, and revenue is $40 per unit.
a) Determine the break-even point for each range.
b) If projected annual demand is between 580 and 660 units, how many
machines should the manager purchase?

Problem#3
A firm’s manager must decide whether to make or buy a certain item used in the
production of vending machines. Cost and volume estimates are as follows:

a) Given these numbers, should the firm buy or make this item?
b) There is a possibility that volume could change in the future. At what
volume would the manager be indifferent between making and buying?

Problem#4
A producer of pottery is considering the addition of a new plant to absorb the backlog
of demand that now exists. The primary location being considered will have fixed costs
of $9,200 per month and variable costs of 70 cents per unit produced. Each item is
sold to retailers at a price that averages 90 cents.
a) What volume per month is required in order to break even?
b) What profit would be realized on a monthly volume of 61,000 units?
87,000 units?
c) What volume is needed to obtain a profit of $16,000 per month?
d) What volume is needed to provide a revenue of $23,000 per month?

problem#5
ABA-201 MANAGEMENT SCIENCE-1
PTELIM PERIOD
PRACTICAL PROBLEMS (COST-VOLUME-PROFIT ANALYSIS)

d. If the variable cost increased by 10% that’s force the owner to increase
the price by 8% what
will be the new Breakeven point quantity?

Problem#6
Eastman Publishing Company is considering publishing a paperback textbook on
spreadsheet application for business. The fixed cost of manuscript preparation, text
book design, and production setup is estimated to be $80,000. Variable production
and material cost are estimated to be $3 per book. Demand over the life of the book is
estimated to be 4000 copies. The publisher plans to sell the text to college and
university bookstore for $20 each.
a) What is the breakeven point?
b) What profit or loss can be anticipated with a demand of 4000 copies?
c) With a demand of 4000 copies, what is the minimum price per copy that the
publisher must charge to breakeven?
d) If the publisher believes that the price per copy could be increased to $25.95
and not affect the anticipated demand of 4000 copies, what action would you
recommend? What profit or loss can be anticipated?

Problem#7

Problem#8

Problem#9
ABA-201 MANAGEMENT SCIENCE-1
PTELIM PERIOD
PRACTICAL PROBLEMS (COST-VOLUME-PROFIT ANALYSIS)