Worksheet for Chapter one

1. Find the slope of a line that has a slope of 12 and a y-intercept of 60.
2. Suppose the fixed cost (set up cost) for producing product x be Birr 6,000. After setup it
costs Birr 8 per x produced. If the total cost is represented by y:
a. Write the equation of this relationship in slope intercept form.
b. State the slope of the line and interpret this number.
c. State the y-intercept of the line and interpret this number.
3. A Salesman has a fixed base salary of Br 600 a week. In addition, he receives a sales
commission that is 10 percent of his total Birr values of sales. State the relationship
between the salesman’s total weekly salary and his sales for the week.
4. A salesman earns a weekly base salary plus a sales commission of 15% of his total
weekly sales. When his total weekly sales total Birr 2000, his total salary for the week is
Birr 800. Derive the formula describing the relationship between total salary and sales.
5. If the relationship between total cost and the number of units made is linear, and if cost
increases by Birr 8 for each additional unit made, and if the total cost of 50 units is Br
1500, find the equation of the relationship between total cost (Y) and number of units
made (x).
6. Find the slope of a line that has a coordinate points of (6 14) and (12 24)
7. An employee of ABC Company has a base salary and, in addition, receives an incentive,
which is a fixed percentage of his level of production. When his monthly productions are
1000 units, his total salary is Birr 4000. When his his monthly productions are 1500
units, his total salary is Birr 6000. Determine his base salary and his incentive percentage
and express the relationship between level of production and salary in equation form.
8. A printing company quotes the price of Birr 1,400 for printing 100 copies of a report and
Birr 3000 for printing 500 copies. Assuming a linear relationship what would be the
price for printing 300 copies? Answer: Birr 2,200.
9. A manufacturing company has a fixed cost of 10,000 and a unit variable cost of Birr 5. If
the company can sell what it produces at a price of Birr 10,
a. Write the revenue and cost and profit equations
b. Find the breakeven point in terms of quantity and sales volume.
c. Interpret the results.
 d. Show diagrammatically the TR, TC, TP, BEP, TFC & TVC
The Effect Of Changing One Variable Keeping Others Constant on BEP
Case 1: Fixed Cost
Assume for the above problem FC is decreased by Br 5,000, citrus paribus.
5,000
TC = 5Q + 5,000 Qe1 = = 1,000 units
5
TR = 10Q
 FC  Qc  
Therefore,   FC & Qehave direct relationship
 FC  Qc  
Case 2 - Unit variable cost
Assume for the above problem unit variable cost decreased by Birr 1, citrus paribus
10,000
TC = 4Q + 10,000 Qe  = 1,667 units
2 6
TR=10Q
V  Qc  
Therefore,  V & Qe have direct relationship
V  Qe  

Case 3- Selling Price

Assume for the above problem selling price is decreased by Birr 1, Citrus Paribus.
TC = 5Q + 10,000  Qe  10, 000
4
 2,500 units
3

TR = 9Q
P  Qe 
Therefore,  P & Qe have indirect relationship
P  Qe 

In the above example if a company can’t produce and sell 5,000 units it has the following
options:
- Decreasing FC
a) Decreasing unit variable cost
b) Increasing the unit selling price
If the organization is faced between cases two and three, it is preferable to decrease the unit
variable cost because if we increase the selling price, the organization may loose its customers;
and also decreasing the FC is advisable.
10. For the above manufacturing company, (question no 9), if it wants to make a profit of Birr
25,000, what should be the quantity level?
11. If it expects a loss of Birr 5,000, what will be the quantity level?
12. Suppose a retail business sells its commodities at a margin of 25% on all items purchased and
sold. Moreover, the company uses a 5% commission as selling expense and Birr 12,000 as a
fixed cost.
a. Find the break-even revenue for the retail business after developing the TC equation.
13. It is estimated that sales in the coming will be Birr 6000 and that fixed cost will be Br 1000
and variable costs Birr 3,600. Develop the total cost equation, and find the breakeven
revenue.
14. ABC’ company’s cost function for the next four months is C= 5Q +500,000
Required:
a. The break-even birr volume of sales if the selling price is Birr 6 per unit.
b. If, b/s of a strike, at the most the company can produce is 100,000 units, should it shut down?
Why or why not?
15. In its first year, “ABOL BUNA” Company had the following experience.
Sales = 25,000 units Selling price = Birr 100
Total variable cost = Birr 1,500,000 TFC = Birr 350,000
Required:
a. Develop revenues, cost, and profit functions for the company in terms of quantity.
b. Find the break-even point in terms of quantity.
c. Convert the cost equation in terms of quantity in to a cost equation in terms of revenue.
d. Find the break-even revenue.
e. If profit had been Birr 500,000 what would have been the sales volume (revenue) and the
quantity of sales.
f. What would have been the profit if sales were Birr 2,000,000?
16. A retail co plans to work on a margin of 44% of retail price and to incur other variable costs
of 4%. If it expects fixed cost of Birr 20,000,
a) Find the equation relating total cost to sales.
b) Find the profit it sales are Birr 60,000.
c) Find the breakeven revenue.
 d) If profit is Birr 15,000, what should be the revenue level?
e) If the company has only one item at a price of Birr 15 per unit, how do you convert the
cost equation in terms of revenue in to a cost equation in terms of quantity?
17. A small home business is set up with an investment of Birr 1,000,000 for equipment. The
business manufactures a product at a cost of Birr 60 per unit. If the product sells for Birr
140, how many units must be sold to make the business at breaks even?
18. A certain car model cost Birr 20,000 with a gasoline engine and Br 25,000 with a diesel
engine. The number of miles per gallon of fuel for cars with these two engines is 25 and 30,
respectively. Assume that the price of both types of fuel is Birr 1.50 per gallon.
Required:
a) Drive the equation for the cost of driving a gasoline powered car.
b) Drive the equation for the cost of driving a diesel powered car.
c) Find the break-even point, that is, find the mileage at which the diesel-powered car
becomes more economical than the gasoline powered car.
19. A firm manufactures and markets a product that sells for Birr 20 per unit. Fixed costs
associated with activity total Birr 40,000 a month, while variable cost per unit is Birr 10. A
maximum of 10,000 units can be produced and sold.
Required:
a. Drive the TR, TC and Total profit functions.
b.Sketch the TR, TC and Total profit functions in the same coordinate system.
c. What is the Break-even point (in terms of quantity and sales volume)?
d. Drives the new TC, Total profit functions given that FC is increased by Birr 10,000 a
month, and calculate the new break-even point.
e. Drive the new TC and Total profit functions given that unit variable costs are decreased by
20% and calculate the new Break-even point.
f. Drive the new TR and Total profit functions given that the unit selling price increases by
20% and calculates the new break-even point.
g. What is the relationship that you may inter from BEP& FC, P& BEP and V& BEP?
h. Assume selling price increases by 10% and at the same time V increases by 10% what is
the effect of these changes on the BEP - calculate the new break-even point. What lesson
can we drive from this?
i. Suppose there is no any change in FC, V and P, What is the maximum profit the firm can
generate, and at what level of output?
j. Keeping P and FC constant, what is the maximum unit variable cost for the firm to break
even (at its maximum output level)?
k. Keeping all things as they are, what is the quantity level at which the company:
 Makes a profit of Birr 100,000?
 Loses Birr 10,000?
l. Had there been no capacity limitation, how would your answer have changed in part (i)?