12.

The O’Neill Shoe Manufacturing Company will produce a special-style

shoe if the order size is large enough to provide a reasonable profit. For
each special-style order, the company incurs a fixed cost of $2000 for the
production setup. The variable cost is $60 per pair, and each pair sells for
$80.
a) Let x indicate the number of pairs of shoes produced. Develop a
mathematical model for the total cost of producing x pairs of shoes.
b) Let P indicate the total profit. Develop a mathematical model for the
total profit realized from an order for x pairs of shoes.
c) How large must the shoe order be before O’Neill will break even?
Solution: 12
Given, Fixed Cost, FC = 2000
Variable Cost, VC = 60
Selling Price, SP = 80
a) Mathematical Model for Total Cost, TC,
Total Cost, TC = FC + VC*x
= 2000 + 60x
b) Mathematical Model for Total Profit,
Profit, P = Revenue – Cost (Fixed Cost + Variable Cost)
= (Selling price*quantity) – Total cost
= 80x – (2000 + 60x)
= 80x – 2000 – 60x
= 20x – 2000
c) If we calculate the breakeven point, we will get the total numbers of
shoes that need to be sold for zero profit.
So, Breakeven, when P = 0
Thus, 20x – 2000 = 0
20x = 2000
 2000
x =
20
x = 100
OR
𝐹𝐶
Breakeven point, BEP =
𝑆𝑃−𝑉𝐶
[FC=Fixed cost, SP=Selling price, VC = variable cost]
2000
=
80−60
= 100
O’Neill has to sell 100 pair of shoes to reach the breakeven.

13. Micromedia offer computer training seminars on a variety of topics. In

the seminars each student works at a personal computer, practicing the
particular activity that the instructor is presenting. Micromedia are
currently planning a two-day seminar on the use of Microsoft Excel in
statistical analysis. The projected fee for the seminar is $600 per student.
The cost for the conference room, instructor compensation, lab assistants,
and promotion is $9600. Micromedia rent computers for its seminars at a
cost of $120 per computer per day.
a) Develop a model for the total cost to put on the seminar. Let x
represent the number of students who enroll in the seminar.
b) Develop a model for the total profit if x students enrolls in the
seminar.
c) Micromedia have forecasted an enrollment of 30 students for the
seminar. How much profit will be earned if their forecast is accurate?
d) Compute the breakeven point.
Solution: 13
Given, Fixed Cost, FC = 9600
 Variable Cost, VC = 120
Selling Price, SP = 600
a) Mathematical Model for Total Cost, TC,
Total Cost, TC = FC + VC*x
= 9600 + 120*2*x
= 9600 + 240x
b) Mathematical Model for Total Profit,
Profit, P = Revenue – Cost
= (Selling price*quantity) – Total cost
= 600x – (9600 + 240x)
= 600x – 9600 – 240x
= 360x – 9600
c) If Micromedia enroll 30 students for the seminar then the estimated
profit will be
Total Profit, P = 360x – 9600
= (360*30) – 9600 [x = 30 number of students]
= 10800 – 9600
= 1200
If Micromedia enroll 30 students for the seminar then the estimated profit
will 1200.
d) If we calculate the breakeven point, we will get the total numbers of
students that need to be enrolling for zero profit.
So, Breakeven, when P = 0
Thus, 360x – 9600 = 0
360x = 9600
9600
x =
360
x = 26.67 (27 students approximately)
OR
𝐹𝐶
Breakeven point, BEP =
𝑆𝑃−𝑉𝐶
[FC=Fixed cost, SP=Selling price, VC = variable cost]
9600
=
600−240
= 26.67 (27 students approximately)
Micromedia have to enroll 27 students for the seminar to reach the
breakeven.

14. Eastman Publishing Company is considering publishing a paperback

textbook on spreadsheet applications for business. The fixed cost of
manuscript preparation, textbook design, and production setup is
estimated to be $160,000. Variable production and material costs are
estimated to be $6 per book. The publisher plans to sell the text to college
and university bookstores for $46 each.
a) What is the breakeven point?
b) What profit or loss can be anticipated with a demand of 3800 copies?
c) With a demand of 3800 copies, what is the minimum price per copy
that the publisher must charge to break even?
d) If the publisher believes that the price per copy could be increased to
$50.95 and not affect the anticipated demand of 3800 copies, what
action would you recommend? What profit or loss can be
anticipated?
Solution: 14
Given, Fixed Cost, FC = 160,000
Variable Cost, VC = 6
Selling Price, SP = 46
a) Mathematical Model for Total Cost, TC,
 Total Cost, TC = FC + VC*x
= 160,000 + 6x
Mathematical Model for Total Profit,
Profit, P = Revenue – Cost
= (Selling price*quantity) – Total cost
= 46x – (160,000 + 6x)
= 46x – 160,000 – 6x
= 40x – 160,000
If we calculate the breakeven point, we will get the total numbers of copies
of book that has to be publishing for zero profit.
So, Breakeven, when P = 0
Thus, 40x – 160,000 =0
40x = 160,000
160,000
x =
40
x = 4000 copies of book
Eastman Publishing Company has to publish 4000 copies of book to reach
the breakeven.
b) Profit or loss with a demand of 3800 copies will be
Total Profit, P = 40x – 160,000
= (40*3800) – 160,000
= 152,000 – 160,000
= – 8000 (Loss)
If Eastman Publishing Company publishes 3800 copies of book then they
will face loss with (8000).
c) With a demand of 3800 copies to reach the breakeven, the minimum
price per copy will be-
Profit, P = Revenue – Cost
 = (Selling price*quantity) – Total cost
= px – (160,000 + 6x)
= 3800p – (160,000 + 6*3800)
= 3800p – (160,000 + 22,800)
— 3800p = —182,800
182,800
P =
3800
P = 48.10
If Eastman Publishing Company publishes 3800 copies of book to reach the
breakeven, the minimum price per copy will be $48.10
d) Increase price of $50.95 with anticipated demand of 3800 copies
with profit or loss:
Profit, P = Revenue – Cost
= (Selling price*quantity) – Total cost
= px – (160,000 + 6x)
= 50.95*3800 – (160,000 + 6*3800)
= 193,610 – (160,000 + 22,800)
= 193,610 — 182,800
P = 10,810
Probably go ahead with the project although the $10,810 is 16.91% return
on the total cost of 182,800.

15. Preliminary plans are under way for the construction of a new stadium
for a major league baseball team. City officials have questioned the number
and profitability of the luxury corporate boxes planned for the upper deck
of the stadium. Corporations and selected individuals may buy the boxes
for $300,000 each. The fixed construction cost for the upper-deck area is
estimated to be $4,500,000, with a variable cost of $150,000 for each box
constructed.
a) What is the breakeven point for the number of luxury boxes in the
new stadium?
b) Preliminary drawings for the stadium show that space is available for
the construction of up to 50 luxury boxes. Promoters indicate that
buyers are available and that all 50 could be sold if constructed. What
is your recommendation concerning the construction of luxury
boxes? What profit is anticipated?
Solution: 15
Given, Fixed Cost, FC = 4,500,000
Variable Cost, VC = 150,000
Selling Price, SP = 300,000
a) Mathematical Model for Total Cost, TC,
Total Cost, TC = FC + VC*x
= 4,500,000 + 150,000x
Mathematical Model for Total Profit,
Profit, P = Revenue – Cost
= (Selling price*quantity) – Total cost
= 300,000x – (4,500,000 + 150,000x)
= 300,000x – 4,500,000 – 150,000x
= 150,000x – 4,500,000
If we calculate the breakeven point, we will get the numbers of luxury
boxes in the new stadium for zero profit.
So, Breakeven, when P = 0
Thus, 150,000x – 4,500,000 =0
150,000x = 4,500,000
 4,500,000
x =
150,000
x = 30 luxury boxes
The stadium authority has to build 30 luxury boxes to reach the breakeven.
b) If stadium authority constructed 50 luxury boxes then the estimated
profit will be
Total Profit, P = 300,000x – (4,500,000 + 150,000x)
= (300,000*50) – (4,500,000 + 150,000*50)
= 15,000,000 – 12,000,000
= 3,000,000
Probably go ahead with the project although the $3,000,000 profit is 40%
return on the total cost of 12,000,000.

Extra 1
The average price of each book is $100, while the cost of publishing the
same book is $60. Fixed cost of $90,000 is required to run the publishing
house.
a) How many books need to be sold to cross the breakeven?
b) What is the revenue at breakeven point?
c) Draw the breakeven graph. On the graph, you must indicate the fixed
cost line, variable cost line, total cost line, revenue line, profit region,
loss region.
Solution: Extra 1
Given, Fixed Cost, FC = 90,000
Variable Cost, VC = 60
Selling Price, SP = 100
 a) If we calculate the breakeven point, we will get the total number of
books that need to be sold for zero profit.
𝐹𝐶
Breakeven point, BEP =
𝑆𝑃−𝑉𝐶
[FC=Fixed cost, SP=Selling price, VC = variable cost]
90,000
=
100−60
= 2250
To reach the breakeven point, the publishing house has to sell at least 2250
books.
b) Revenue at breakeven = BEP * SP
= 2250*100
= $225,000
Thus, when the revenue is $225,000, the profit will be zero (breakeven).

c) The breakeven graph:

Note: This is a sample

of breakeven graph.
You have to draw this
graph with the help of
the data that you will
get from your answer.
This graph only gives
you the guidance how
to draw the breakeven.