Академический Документы
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Культура Документы
University of Nebraska
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9/4/13!
Problems 1-6!
For each of the following, are they: (A) xed costs or (B) variable costs?" ! 1.Your rent each month? ! 2.Your electricity bill?! 3.Your cable TV bill?! 4. A companies hourly labor cost?! 5. A companies engineering labor cost?! 6. A companies Taxes?!
TVC = VC * Q!
TC = FC + VC * Q!
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Problem 6!
To help pay for college, you have decided to start selling coffee outside of Othmer Hall. Costs associate with this are:!
$10,000 for the coffee stand and $0.50 per cup of coffee in supplies (coffee, cups and electricity)?!
What is the minimum you should consider selling a cup of coffee for?!
(A) $0.50! (B) $0.51! (C) $1.00! (D) $2.00!
Problem 7!
Based on the market value for coffee, you set your price at $1.00 per cup. How many cups of coffee do you need to sell to start making a prot?!
(A) 1! (B) 10,000! (C) 20,000! (D) 50,000!
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Breakeven Point!
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Because most operations have both xed and variable costs,
the selling price is set to a level above the variable costs what happens if this is not the case?! revenue is equal to total cost. !
-! Applications of Break-even Analysis:! -! Determining minimum production quantity! -! Forecast production prot / loss!
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$
Profit
Variable Costs
Loss
Fixed Costs
Break-even Point
Production Quantity
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Problem 8!
A labor-intensive process has a xed cost of $338,000 and a variable cost of $143 per unit. A capitol-intensive (automated) process for the same product has a xed cost of $1,244,000 and a variable cost of $92.50. If the selling price for the product is $197, how many units must be sold to justify the automated process?!
(A) 1! (B) 6259! (C) 11,904! (D) 17,940!
PROBLEM 8!
$4,500,000! $4,000,000! $3,500,000! $3,000,000! $2,500,000! $2,000,000! $1,500,000! $1,000,000! $500,000! $0! 0! 5000! 10000! 15000! Units Produced! 20000!
338,000 + 143x = 197x x = 6259 1,244,000 + 92.5x = 197x x = 11,904
Revenue!
Cost of Laborintensive Process ! Cost of Automated Process !
25000!
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-! Marginal Costs: the variable cost for one -! Capacity Planning: Excess capacity! -! Basis for last-minute pricing! -! Average Costs: total cost divided by the -! Basis for normal pricing!
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-! Sunk Costs: Cost that has occurred in the past -! Purchasing price of current equipment in -! Opportunity Costs: Cost of the foregone
opportunity and is hidden or implied!
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and has no relevance to estimates of future costs and revenues related to an alternative! deciding new equipment (except for capital gain/loss consideration)!
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Sunk Costs!
-! Note that people have a particular difculty -! In the current housing crisis, many peoples
ignoring sunk costs in decision making.! houses are not worth what they were 2 years ago and they will not sell the house for what it is worth now.! conviction that their luck must change in the future (Gamblers ruin)!
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-! Non-recurring Costs: Not repetitive, even though the -! Examples are purchase cost for real estate, and the -! Incremental Costs: Difference in costs between two
alternatives.!
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-! Cash Costs: Costs that involve money/cash -! Book Costs: Costs that that do not involve -! Depreciation is charged for the use of assets,
such as plant and equipment! money/cash transaction!
transaction!
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Life-Cycle Costs!
-! Life-Cycle Costs: Summation of all costs, both -! Life cycle begins with the identication of the
recurring and nonrecurring, related to a product, structure, system, or service during its life span.! economic needs or wants (the requirements) and ends with the retirement and disposal activities.!
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Cost Estimating!
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Be careful when discounting the estimates of people who have more experience than you do.! often effect estimates. Be careful when interpreting estimates from people who have a clear reason for providing biased values. !
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Methods of Estimation!
-! Bound the upper and lower limits of a parameter -! Estimates should almost always be provided as -! Generalize from the a specic measurable event
to a less specic non-measurable event.! an interval statistical condence interval.! and then examine the assumptions of each.!
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Problem 10!
How much will the monthly payments be on a $20,000 car if the loan period if 48 months, and the interest rate is 5% (compounded monthly)!
(A) $416.67 ! (B) $460.59! (C) $500.00!
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9/4/13!
Problem 11!
How much money ($) is in the room? !
(A) LESS THAN $10 ! (B) BETWEEN $10 AND $100! (C) MORE THAN $100!
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Bottom-up Approach!
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ows!
Timing of Cash Flow At time zero (now) 1 time period from today 2 time periods from today 3 time periods from today 4 time periods from today 5 time periods from today
Size of Cash Flow Positive $100 Negative $100 Positive $100 Negative $150 Negative $150 Positive $50
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-! First cost: expenses to build or to buy and install! -! Operations and maintenance (O&M): annual -! Salvage value: receipt at project termination for -! Revenues: annual receipts due to sale of products -! Overhaul: major capital expenditure that occurs
during the assets life!
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expense, such as electricity, labor, and minor repairs! sale or transfer of the equipment! or services!
Drawing a Cash Flow Diagram! -! Shows when all cash ows occur! -! The end of period t is the same time as the
-! Rent, lease, and insurance payments are usually -! O&M, salvage, revenues, and overhauls are -! The choice of time 0 is arbitrary!
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