Tài liệu tiếng Anh Session 2 Decision making models supplement a

Tài liệu tiếng Anh Session 2 Decision making models supplement a

Decision Making Models

Supplement A

A - 01

Decision Making Tools

Break-even analysis notation

Example A.1

A hospital is considering a new procedure to be offered at

$200 per patient The fixed cost per year would be $100,000 with total variable costs of $100 per patient What is the

break-even quantity for this service? Use both algebraic and graphic approaches to get the answer.

The formula for the break-even quantity yields

Q = F

p - c = 100,000 200 – 100 = 1,000 patients

Example A.1

Total annual costs

Fixed costs Break-even quantity

 The two lines intersect at

1,000 patients , the break-even quantity

(2000, 400)

Application A.1

The Denver Zoo must decide whether to move twin polar bears to Sea World or build a special exhibit for them and the zoo The expected increase in attendance is 200,000 patrons The data are:

Revenues per Patron for Exhibit

attendance sufficient to break even?

Q = 203,846

Make-or-buy decision notation

Example A.3

• A fast-food restaurant featuring hamburgers is adding

salads to the menu

• The price to the customer will be the same

• Fixed costs are estimated at $12,000 and variable costs

totaling $1.50 per salad

• Preassembled salads could be purchased from a local

supplier at $2.00 per salad

• Preassembled salads would require additional

refrigeration with an annual fixed cost of $2,400

• Expected demand is 25,000 salads per year

• What is the break-even quantity?

The formula for the break-even quantity yields the following:

Application A.2

• At what volume should the Denver Zoo be

indifferent between buying special sweatshirts from

a supplier or have zoo employees make them?

Buy Make Fixed costs $0 $300,000

Solved Problem

• A small manufacturing business has patented a new device

for washing dishes and cleaning dirty kitchen sinks

• The owner wants reasonable assurance of success

• Variable costs are estimated at $7 per unit produced and sold

• Fixed costs are about $56,000 per year

a. If the selling price is set at $25, how many units must be produced and sold to break even? Use both algebraic and graphic approaches.

b Forecasted sales for the first year are 10,000 units if the

price is reduced to $15 With this pricing strategy, what

would be the product’s total contribution to profits in the first year?

Total costs

Break-even quantity

b. Total profit contribution = Total revenue – Total cost

= pQ – (F + cQ)

= 15(10,000) – [56,000 + 7(10,000)]

= $24,000

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