Sup A - 1 Total Cost = Fixed Cost + Variable Cost

Total Cost = F + cQ
where Variable Cost is Variable Cost per Unit c
times Quantity Q
Total Revenue = Price * Quantity
Total Revenue = pQ
At Break Even, Total Revenue = Total Cost
pQ = FEven
Break + cQ Quantity, 𝑸=𝑭/
(𝒑−𝒄)

where Q is the Break Even Quantity

Fixed Cost, F = $60,000

Variable Cost per Unit, c = $6

a Find Break Even Quantity if Selling Price is $18

Break Even Quantity, 𝑸=𝑭/(𝒑−𝒄)

Q= $60,000
$18 - $6
= 5,000 Units

Quantity Fixed Cost Variable Cost Total Cost Sales Price Revenue
per unit

0 $60,000 $6 $60,000 $18 $0

2,000 $60,000 $6 $72,000 $18 $36,000
4,000 $60,000 $6 $84,000 $18 $72,000
6,000 $60,000 $6 $96,000 $18 $108,000
8,000 $60,000 $6 $108,000 $18 $144,000
10,000 $60,000 $6 $120,000 $18 $180,000

Break Even Quantity

$210,000
$180,000
$150,000
$120,000
Revenue

$90,000
$60,000
$30,000
$0
0 2,000 4,000 6,000 8,000 10,000
Quantity
 $120,000

Revenu
$90,000
$60,000
$30,000
$0
0 2,000 4,000 6,000 8,000 10,000
Quantity

Total Cost Revenue

b Calculate Profit if Quantity sold is 10,000 @ $14 each

Profit = Total Revenue – Total Cost
= pQ - (F + cQ)
= $14*10,000 - (60,000 + 6*10,000)
= $20,000

c Calculate Profit if Quantity sold is 15,000 @ $12.50 each

Profit = Total Revenue – Total Cost
= pQ - (F + cQ)
= $12.5*15,000 - (60,000 + 6*15,000)
= $37,500

Calculate Profit if Quantity sold is 15,000 @ $14 each

Profit = Total Revenue – Total Cost
= pQ - (F + cQ)
= $14*15,000 - (60,000 + 6*15,000)
= $60,000

Based on the aforesaid, pricing the product @ $14 will yield greater contribution to profits

d Since the evaluation is for a new product line, below considerations a important
What economies of scale can be leveraged in the supply chain, production and sales process
Will the new product line sales be cannibalistic
How the new product line will be financed
Porter's 5 forces - Suppliers, Customers, Competition, Substitute, New Entrants
Sup A - 10 Build or Buy decision

Total Cost = Fixed Cost + Variable Cost

Total Cost = F + cQ
where Variable Cost is Variable Cost per Unit c times Quantity Q

Build
Total Cost= 10,000,000 + (150,000 *35)
= $15,250,000

Buy
Total Cost= 0 + (150,000 *75)
= $11,250,000

Based on the aforesaid comparison, it will be cheaper for Boulder to buy

electricity
Sup A - 14 Weighted Score = Factor Weight * Location Score

Location Score

Factor Weighted Weighted

Location Factor A B Score Score
Weight
A B
Construction costs 10 8 5 80 50
Utilities available 10 7 7 70 70
Business services 10 4 7 40 70
Real estate cost 20 7 4 140 80
Quality of life 20 4 8 80 160
Transportation 30 7 6 210 180
Total 37 37 620 610

a As Weighted Score of A is better than B, Location A must be chosen

b If the factors are weighted equally, both locations will have the same scores
as both the locations have the same score (37)
Sup A - 16

Build Rite Row

Alternative Low Moderate High Min Max Average/W

eighted
Hire ($250,000) $100,000 $625,000 ($250,000) $625,000 $158,333
Subcontract $100,000 $150,000 $415,000 $100,000 $415,000 $221,667
Do Nothing $50,000 $80,000 $300,000 $50,000 $300,000 $143,333

Maximin $100,000
Maximax $625,000
LaPlace $221,667

a Maximin - Minimum payoff for each alternative, then choose alternative with maximum among related
Best decision : Subcontract ($100,000)

b Maximax - Maximum of each alternative and then select maximum amongst

Best decision : Hire ($625,000)

c Laplace - Average of all the alternatives and then select the best payoff
Best decision : Subcontract ($221,667)

Minimax Regret - Find regrets for each alternative, selcting alternative that helps in minimizing maximum
regret (difference between the highest value and each alternative)
d

Opportunity Loss (Regret) Row

Alternative Low Moderate High Max
Hire $350,000 $50,000 $ - $350,000
Subcontract $ - $ - $210,000 $210,000
Do Nothing $50,000 $70,000 $325,000 $325,000

Minimax $210,000
Sup A - 24

a Decision Tree

In millions $

b Based on the aforesaid, the management should build a large facility as it has a higher expected payoff of
$14.1 million
Cost Demand Demand Demand Sale Demand Demand
$ 15.00 $ 15.00 $ 15.00 $ 40.00 $ 40.00

25 60 130 25 60
Order 25 $375 $375 $375 Order 25 $1,000 $1,000
Order 60 $900 $900 $900 Order 60 $1,000 $2,400
Order 130 $1,950 $1,950 $1,950 Order 130 $1,000 $2,400
Demand Profit
$ 40.00 Row

Average/W
Min Max eighted
130
$1,000 $625 $625 $625 625 625 $625
$2,400 $100 $1,500 $1,500 625 1500 $1,033
$5,200 ($950) $450 $3,250 950 3250 $917
Maximin 950
Maximax 3250
LaPlace 1208

$0 $875 $2,625 2625

$525 $0 $1,750 1750
$1,575 $1,050 $0 1575
Sup A - 16

Row

Alternative Low Moderate High Min Max Average/W

eighted
Hire ($250,000) $100,000 $625,000 ($250,000) $625,000 $158,333
Subcontract $100,000 $150,000 $415,000 $100,000 $415,000 $221,667
Do Nothing $50,000 $80,000 $300,000 $50,000 $300,000 $143,333
Maximin $100,000
Maximax $625,000
LaPlace $221,667
a Maximin - Minimum payoff for each alternative, then choose alternative with maximum
b Maximax - Maximum of each alternative and then select maximum amongst
c Laplace - Average of all the alternatives and then select the best payoff
Minimax Regret - Find regrets for each alternative, selcting alternative that helps in minimizing
maximum regret (difference between the highest value and each alternative)
d
Opportunity Loss (Regret) Row
Alternative Low Moderate High Max
Hire $350,000 $50,000 $ - $350,000
Subcontract $ - $ - $210,000 $210,000
Do Nothing $50,000 $70,000 $325,000 $325,000
Minimax $210,000