Week 2

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School

Western University *

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Course

MOS 3330

Subject

Medicine

Date

Oct 30, 2023

Type

docx

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Tutorial Week 2: 1. Mary Williams, owner of Williams Products, is evaluating whether to introduce a new product line. After thinking through the production process and the costs of raw materials and new equipment, Williams estimates the variable costs of each unit produced at $6 and fixed costs per year at $60,000. Develop an Excel model to answer: a. If the selling price is et at $18 each, how many units must be produced and sold for Williams to break even? b. William forecasts sales of 10,000 units for the first year if the selling price is set at $14 each. What would be the total contribution to profits from this new product during the first year? c. If the selling price is at $12.50, Williams forecasts that first-year sales would increase to 15,000 units. What pricing strategy ($14,00 or $12.50) would result in the great tool contribution to profits? 2. Susan Meyer, owner/manager of Meyer’s Motor Court in Wasage Beach, Ontario is considering outsourcing the daily room cleanup for her motel to Duffy’s Maid Service. Susan rents an average of 40 rooms each of 365 nights 365x50 equals the total rooms rented for the year). Susan’s cost to clean a room is $12.50. The Duffy’s Maid Service quote is $18.50 per room plus a fixed cost of $25,000 for sundry items such as uniforms with the motel’s name. Susan’s annual fixed cost for space, equipment, and supplies is $61,000. Which is preferred process for Susan, and why? 3. Fall-Line, Inc. is a Great Falls, Montana, manufacturer of a variety of downhill skills. Fall-Line is considering four locations for a new plant; Aspen, Colorado; Medicine Lodge, Kansas; Broken Bow, Nebraska; and Wounded Knee, South Dakota. Annual fixed costs and variable costs per pair of skis are shown in the following table: LOCATION ANNUAL FIXED COSTS VARIABLE COSTS Aspen $8,000,000 $250 Medicine Lodge $2,400,000 $130 Broken Bow $3,400,000 $90 Wounded Knee $4,500,000 $65 a. Plot the total cost curves for all the locations on a single graph. Identify on the graph the range in volume over which each location would be best. b. What break-even quantity defines each range? Although Aspen’s fixed and variable costs are dominated by those of the other locations, Fall-Line believes that both the dean and the price would be higher for skis made in Aspect that for skis made in the other locations. The following table shows those projections: LOCATION PRICE PER PAIR FORECAST DEMAND PER YEAR Aspen $500 60,000 pairs Medicine Lodge $350 45,000 pairs Broken Bow $350 43,000 pairs Wounded Knee $350 40,000 pairs

c. Determine which location yields the highest total profit contribution per year. d. Is this location decision sensitive to forecast accuracy? At which minimum sales volumes does volume does Aspen become the location of choice?

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