Answer 5 Questions: Include Questions In Black And Answers I

Answer 5 Questions Include Questions In Black And Answers In Red1 16

Answer 5 questions. Include questions in black and answers in red.

1-16 Ray Bond sells handcrafted yard decorations at county fairs. The variable cost to make these is $20 each, and he sells them for $50. The cost to rent a booth at the fair is $150. How many of these must Ray sell to break even?

1-17 Ray Bond, from Problem 1-16, is trying to find a new supplier that will reduce his variable cost of production to $15 per unit. If he was able to succeed in reducing this cost, what would the break-even point be?

1-20 Farris Billiard Supply sells all types of billiard equipment and is considering manufacturing its own brand of pool cues. Mysti Farris, the production manager, is currently investigating the production of a standard house pool cue that should be very popular. Upon analyzing the costs, Mysti determines that the materials and labor cost for each cue is $25 and the fixed cost that must be covered is $2,400 per week. With a selling price of $40 each, how many pool cues must be sold to break even? What would the total revenue be at this break-even point?

1-21 Mysti Farris (see Problem 1-20) is considering raising the selling price of each cue to $50 instead of $40. If this is done while the costs remain the same, what would the new break-even point be? What would the total revenue be at this break-even point?

1-22 Mysti Farris (see Problem 1-20) believes that there is a high probability that 120 pool cues can be sold if the selling price is appropriately set. What selling price would cause the break-even point to be 120?

Paper For Above instruction

Understanding the fundamentals of cost-volume-profit (CVP) analysis is crucial for effective business decision-making. This paper addresses five specific questions related to break-even analysis and pricing strategies, illustrating essential concepts of fixed costs, variable costs, and contribution margins.

Break-even Analysis for Ray Bond's Yard Decorations

Ray Bond's business model for handcrafted yard decorations involves fixed costs of $150 for booth rental and variable costs of $20 per item, with a selling price of $50 per decoration. To determine the number of units Ray needs to sell to break even, the formula is:

Break-even units = Fixed Costs / (Selling Price per unit - Variable Cost per unit)

Applying the values:

Break-even units = $150 / ($50 - $20) = $150 / $30 = 5 units

This means Ray must sell five yard decorations to cover all costs, thereby reaching the break-even point where profit is zero.

Impact of Reducing Variable Costs on Break-even Point

In Problem 1-17, the variable cost reduces from $20 to $15 per unit. Keeping all other figures constant, the new break-even point can be calculated as:

Break-even units = $150 / ($50 - $15) = $150 / $35 ≈ 4.29 units

Since units cannot be sold in fractions, Ray needs to sell at least 5 units to break even. The reduction in variable cost decreases the break-even quantity from 5 to approximately 4.29 units, demonstrating the importance of cost control in profitability.

Break-even Analysis for Farris Billiard Supply's Pool Cues

The fixed weekly cost for manufacturing and selling pool cues is $2,400, with per-unit costs of $25, and selling price of $40. The break-even point is calculated as:

Break-even units = $2,400 / ($40 - $25) = $2,400 / $15 = 160 units

At this volume, total revenue is:

Total Revenue = Number of units × Selling price = 160 × $40 = $6,400

This means Farris Billiard Supply must sell 160 cues to cover all costs, achieving a break-even revenue of $6,400.

Effect of Price Increase on Break-even Point and Revenue

In Problem 1-21, raising the price to $50 while maintaining fixed and variable costs yields:

Break-even units = $2,400 / ($50 - $25) = $2,400 / $25 = 96 units

Corresponding total revenue at this break-even point would be:

Total Revenue = 96 × $50 = $4,800

Thus, increasing the price decreases the break-even volume, but total revenue at this point is $4,800.

Pricing to Achieve a Break-even of 120 Cues

In Problem 1-22, to find the selling price that results in a break-even point of 120 cues, we use the formula:

Selling Price = (Fixed Costs / Number of Units + Variable Cost per unit)

Plugging in the values:

Selling Price = ($2,400 / 120) + $25 = $20 + $25 = $45

Therefore, setting the selling price at $45 per cue would result in a break-even volume of 120 cues, balancing the fixed and variable costs at this sales level.

Conclusion

These calculations underscore the significance of variable and fixed costs, pricing strategies, and sales volume analysis in business planning. Adjusting costs or prices directly impacts the break-even point and profitability, providing crucial insights for managers and entrepreneurs. Efficient cost management and strategic pricing are vital tools to optimize business outcomes and achieve financial objectives in competitive markets.

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