# Determine the annual break even volume for the Retread Tire Company operation.

1. The Retread Tire Company recaps tires. The fixed annual cost of the recapping operation is \$65,000. The variable cost of recapping a tire is \$7.5. The company charges\$25 to recap a tire.

a. For an annual volume of 15, 000 tire, determine the total cost, total revenue, and profit.

b. Determine the annual break even volume for the Retread Tire Company operation.

2. Evergreen Fertilizer Company produces fertilizer. The company’s fixed monthly cost is \$25,000, and its variable cost per pound of fertilizer is \$0.20. Evergreen sells the fertilizer for \$0.45 per

pound. Determine the monthly break even volume for the company.

3. If Evergreen Fertilizer Company in problem 2 changes the price of its fertilizer from \$0.45 per

pound to \$0.55 per pound, what effect will the change have on the break even volume?

4. If Evergreen Fertilizer Company increases its advertising expenditure by \$10,000 per year, what

effect will the increase have on the break even volume computed in problem 2?

5. Annie McCoy, a student at Tech, plans to open a hot dog stand inside Tech’s football stadium

during home games. There are 6 home games scheduled for the upcoming season. She must pay the Tech athletic department a vendor’s fee of \$3,000 for the season. Her stand and other equipment will cost her \$3,500 for the season. She estimates that each hot dog she sells will cost her \$0.40. she has talked to friends at other universities who sell hot dogs at games. Based on their information and the athletic department’s forecast that each game will sell out, she anticipates that she will sell approximately 1,500 hot dogs during each game.

a. What price should she charge for a hot dog in order to break even?

b. What factors might occur during the season that would alter the volume sold and thus the break even price Annie might charge?

6.The college of business at Kerouac University is planning to begin an online MBA program. The initial start up cost for computing equipment, facilities, course development and staff recruitment

and development is \$400,000. The college plans to charge tuition of \$20,000 per student per year. However, the university administration will charge the college \$10,000 per student for the first 100

students enrolled each year for administrative costs and its share of the tuition payments.

a. How many students does the college need to enroll in the first year to break even?

b. If the college can enroll 80 students the first year, how much profit will it make?

c. The college believes it can increase tuition to \$25,000, but doing so would reduce enrollment to 50. Should the college consider doing this?

Chapter 11

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