Question

The owner of a newsstand estimates the weekly fixed cost to be $50. The owner expects to sell 300 newspapers per week at $1.50 per newspaper. The variable cost per c newspaper is $0.50.

a. What level of sales volume will allow the owner to break even?

b. How does a change in sales volume (range 100-500 in increments of 50) affect profit?

c. How does a joint change in sales volume (range 100-500 in increments of 50) and variable cost (range $0.20 and $1 in increments of $0.1) affect profit?

Answer 1

1		per unit
	Sales	$1.50
	Variable cost	$0.50
	Contribution	$1.00
	Fixed Cost	$50
	Break Even Point =	Fixed cost/Contribution per unit
	=	$50/1
	=	50	Units
2	Units	100	150	200	250	300	350	400	450	500
	Sales	$150.00	$225.00	$300.00	$375.00	$450.00	$525.00	$600.00	$675.00	$750.00
	Variable cost	$50.00	$75.00	$100.00	$125.00	$150.00	$175.00	$200.00	$225.00	$250.00
	Contribution	$100.00	$150.00	$200.00	$250.00	$300.00	$350.00	$400.00	$450.00	$500.00
	Fixed Cost	$50.00	$50.00	$50.00	$50.00	$50.00	$50.00	$50.00	$50.00	$50.00
	Profit	$50.00	$100.00	$150.00	$200.00	$250.00	$300.00	$350.00	$400.00	$450.00
	Note: Profit will increase constantly $50 as an increase in units by 50 units
3	Units	100	150	200	250	300	350	400	450	500
	Sales	$150.00	$225.00	$300.00	$375.00	$450.00	$525.00	$600.00	$675.00	$750.00
	Variable cost	$20.00	$45.00	$80.00	$125.00	$180.00	$245.00	$320.00	$405.00	$500.00
	Contribution	$130.00	$180.00	$220.00	$250.00	$270.00	$280.00	$280.00	$270.00	$250.00
	Fixed Cost	$50.00	$50.00	$50.00	$50.00	$50.00	$50.00	$50.00	$50.00	$50.00
	Profit	$80.00	$130.00	$170.00	$200.00	$220.00	$230.00	$230.00	$220.00	$200.00
	Note: Profit will increase as an increase in units but after 350 units
	profit will stop increasing to 400 units and after that profit will start decreasing.