MBA 5200 Week 2 Practice Set

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Please type a numerical solution to the problems below:

  1. Malden Corporation has annual fixed costs of $2,200,000, variable costs of $45 per unit and a selling price of $100 per unit. What is Malden’s breakeven point in units?
  2. Bluff Corporation has a selling price per unit of $20 and a variable cost per unit of $8.50. What is Bluff’s contribution margin per unit in dollars and what is its contribution margin in percentage terms?
  3. Gideon currently has a fixed annual cost of $880,000, variable cost of $22 per unit, and a selling price of $50 per unit. What is Gideon’s current breakeven point?
  4. Continuing from the prior problem, Gideon is studying the possibility of expanding with a new factory because demand for their product is more than they can service in the old factory. If they proceed with this plan their annual fixed costs will increase to $1,600,000.  Their variable cost per unit and selling price per unit will stay the same.  What is Gideon’s new breakeven point with the new factory?
  5. Clarkton currently has a fixed annual cost of $88,000, variable cost of $4 per unit, and a selling price of $14 per unit. What unit volume is needed for Clarkton to earn a desired profit of $50,000.
  6. Dexter Corporation forecast the following units and selling prices:

                                         Year 1                     Year 2                     Year 3                     Year 4

Unit sales                                   1,000                1,500                2,000                3,000

Selling price per unit                      $10                   $12                   $15                   $18


Please calculate Dexter’s projected or proforma sales.


  1. Continuing from the prior problem, Dexter has the following fixed cost per year and variable cost per unit each year:

                                                Year 1              Year 2              Year 3              Year 4

Annual fixed costs                    $2,000              $2,100              $2,200              $2,400

Variable costs per unit                    $5                     $6                     $8                     $9


Assuming these are all the costs for Dexter. Please calculate Dexter’s projected or proforma profit.

  1. Continuing from the prior two problems, if Dexter pays 20% of pretax income (not sales) in taxes to various government authorities, please calculate Dexter’s after-tax net income.
  2. Knowing what you now know about fixed and variable costs, assume that you read these two headlines:
    • Comcast (an internet supplier with high sunk costs and very low variable costs in its internet operations) expects to sign up 200,000 new internet subscribers this month for $50 per month or $600 per year for a total increase in sales of $120,000,000 per year.
    • Kroger (a large grocery store operation with high variable costs) expects its sales to increase $120,000,000 this year.

Assume that in both situations the increase is within the relevant range of operations and no additional capacity will need to be added.  Which of these two companies will benefit the most financially? Why?

  1. New Madrid Chocolate Corporation manufactures bulk chocolate that it sells to Venus Candy Company.  Currently, New Madrid packages and ships their bulk chocolate in 50-pound bars that are then shipped by truck to Venus.  Venus then unpacks the bars, disposes of the packaging, melts the bars, and works the chocolate into smaller retail products.  An astute and environmental conscientious employee observes that New Madrid could make the chocolate keep it hot or warm and ship it in heated train tanker cars to Venus rather than by truck as they do now. This would save cooling and reheating energy cost, packaging cost and time associated with these activities.  Assume the following cost:
    • Existing cooling cost and time for New Madrid $10,000
    • Existing packaging cost for New Madrid $20,000
    • Existing annual transportation cost by truck $50,000 paid by New Madrid
    • New annual transportation cost by train $40,000 paid by New Madrid (if implemented)
    • Existing unpackaging and disposal cost of packaging for Venus $10,000
    • Existing reheating cost and time for Venus $30,000


How much will New Madrid gain if they approach Venus and Venus agrees to implement this “activity-reducing” plan?

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