Problem 1. ABC Manufacturing is unsure of the ideal price to quote for one of their products, a pump. ABC's president has asked you to do a break-even analysis for the pump, and to recommend the optimal price. The fixed costs (FC) associated with manufacturing this particular product are $100,000, and the variable costs (VC) are $50 per unit. ABC's president is considering a selling price (P) for this product of $100. The president wants to know how many units have to be sold in order to break even (BEU).
- Evaluate the operations management issue?
- Provide the algebraic equation (using BEU, FC, P, and VC as variables) for the breakeven analysis.
- Calculate and provide the numeric breakeven value.
Problem 2. ABC's president believes there is substantial competition for this type of pump, and that price is a significant factor in potential customer's purchase decision. He estimates that the company will sell 3,600 pumps (unit volume or UV) if they are priced at $100, and will sell 2,900 pumps if they are priced at $110. He wants to know what contribution to profit (CP) would result from each of those two selling prices, and thus which is the better price.
- Evaluate the operations management issue.
- Provide the algebraic equation (using CP, UV, P, and VC as variables) for this analysis.
- Calculate and provide the numeric contribution to profit (in dollars) for each of the two price points.