Assignment 10, Economics 103 Spring 2000, Chico
State University
Assignment 10, ECON 103
Problem 1
Crazy Vans, Inc., has the opportunity to
expand its product line by introducing "Dreamochine" (at a price
of $1, 140) or "Steadyeddy" (at a price of $470), an economy
product-line kit. Production of each Dreamochine kit would require 60
hours of labor and $350 in materials. The figures for Steadyeddy would be
30 hours and $100 in materials. Energy, supervisory, and other variable
costs would be $50 for each unit of each type of good produced. Unskilled
labor is $4 in this south of the border plant. Allocated overhead is
$100 for Dreamochine and $50 for Steadyeddy at a projected production of
2,000 each. (Hint: Variable overhead is a variable cost;
allocated overhead is a fixed cost.)
- What the break-even level of output for each product?
- What is the DOL for each product?
- How do you interpret your answer for part b?
Problem 2
Appalachia Beverage Co., Inc, is considering expanding into the
Mid-West. Alternative 1: Construct a single plant in
Indianapolis, Indiana, with a monthly production capacity of 300,000
cases, a monthly fixed cost of $262,500, and a variable cost of $3.25 per
case. Alternative 2: Construct 3 plants, one each in Muncie,
Indiana, Normal, Illinois, and Dayton Ohio, with capacities of 120,000,
100,000, and 80,000, respectively, and monthly fixed costs of $120,000,
$110,000, and $95,000.
Lower distribution costs will result in a lower variable cost of $3 per
case. Sales of each smaller plant will be limited to demand within the
home state. Total demand of 200,000 is distributed as follows: 80,000
in Indiana, 70,000 in Illinois, and 50
,000 in Ohio.
- If the wholesale price is $5 per case, what is BEQ?
- If sales are as projected, which alternative is more
profitable?
- If sales reach capacity, which is more
profitable?
Answer the above problems using Excel and e-mail the spreadsheet to:
shockley@rocko.csuchico.edu
as attachments before 5 p. m. Thursday (4/13/00).