Page 46 -

26 CHAPTER 1 INTRODUCTION

9 The O’Neill Shoe Manufacturing Company in Ireland will produce a special-style shoe if
theorder size is largeenoughtoprovide areasonableprofit. Foreachspecial-style
order, the company incurs a fixed cost of E1000 for the production setup. The variable
cost is E30 per pair, and each pair sells for E40.
a. Let x indicate the number of pairs of shoes produced. Develop a mathematical model for
the total cost of producing x pairs of shoes.
b. Let P indicate the total profit. Develop a mathematical model for the total profit realized
from an order for x pairs of shoes.
c. How large must the shoe order be before O’Neill will break even?
10 Micromedia is a small computer training company based in South Africa. The company
organizes training workshops for local employees who want to improve their skills in
word processing, spreadsheets and so on. Micromedia is currently planning a two-day
workshop on the use of Microsoft Excel in quantitative business modelling. The
company intends to charge a fee per participant of 3000 Rand. The company estimates
that it will cost around 48 000 Rand to run the workshop. This cost includes conference
room, tutor fees, marketing. In addition the company rents PCs for its workshops from
a local IT company at 300 Rand per day per PC.
a. Develop a model for the total cost to put on the seminar. Let x represent the number of
participants who enrol in the workshop.
b. Develop a model for the total profit if x participants enrol in the workshop.
c. Micromedia has forecasted an enrolment of 30 participants for the workshop. How
much profit will be earned if their forecast is accurate?
d. Calculate the breakeven point.

11 Naser Publishing Company is considering publishing a DVD on spreadsheet
applications for business. The fixed cost of preparation, design and production setup is
estimated to be E80 000. Variable production and material costs are estimated to be
E3 per DVD. Demand over the life of the DVD is estimated to be 4000 copies. The
publisher plans to sell the DVD to college and university bookstores for E20 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 break even?
d. If the publisher believes that the price per DVD could be increased to E25.95 and not
affect the anticipated demand of 4000 DVDs, what action would you recommend? What
profit or loss can be anticipated?

12 Preliminary plans are under way for the construction of a new stadium for a football
team in Italy. Officials have questioned the number and profitability of the luxury
corporate boxes planned for the upper deck of the stadium. Corporations and selected
individuals may buy the boxes for E100 000 each. The fixed construction cost for the
upper-deck area is estimated to be E1 500 000, with a variable cost of E50 000 for each
box constructed.
a. What is the breakeven point for the number of luxury boxes in the new stadium?
b. Preliminary drawings for the stadium show that space is available for the
construction of up to 50 luxury boxes. Promoters indicate that buyers are
available and that all 50 could be sold if constructed. What is your
recommendation concerning the construction of luxury boxes? What profit is
anticipated?

Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has
deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.