Homework Answers – Slides DM
1.
Williams Products
a. Break-even quantity
Q  Fixed costs Unit price  Unit variable costs
 $60,000 $18  $6
 5,000 units
The graphic approach is shown on the following illustration, using Break-Even
Analysis Solver of OM Explorer.
Two lines must be drawn:
Revenue:  18Q
Total cost:  60,000  6Q
b. Profit=Revenue  Total cost
 pQ   F  cQ    $14.00 10, 000  $60, 000  ($6)10, 000
 $140, 000  $120, 000  $20, 000
c. Profit=Revenue  Total cost
 pQ   F  cQ    $12.50 15,000  $60,000  $6 15,000 
 $187,500  $150,000  $37,500
Therefore, the strategy of using a price of $12.50 will result in a greater
contribution to profits.
d. Williams must also consider how this product fits within her existing product
line from the perspective of required technologies and distribution channels.
Other marketing, operations, and financial criteria must also be considered.
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5. Gabriel Manufacturing
a. Total cost  Fixed cost  Variable cost
TC  F  cQ
TC  first process   $300, 00  $600Q
TC  second process   $120, 000  $900Q
At the break-even quantity,
$300,000  $600Q  $120,000  $900Q
$300Q  $180,000
Q  600 units
Beyond 600 units the first process becomes more attractive.
b. At Q  800 units
TC  first process   $300, 000  $600  800   $780, 000
TC  second process   $120, 000  $900  800   $840, 000
The difference in total cost  $840, 000  $780, 000  $60, 000
14. Accel Express, Inc.
a. Total weighted score A=620, B=610, Choose A
b. Equal weights, A=B=37 tie
15. Build-Rite Construction
a. Maximin Subcontract, Payoff $100,000
b. Maximax Hire, Payoff $625,000
c. Laplace Subcontract, Payoff $221,667
Sup #2 answers above in ExpProfit column. Subcontract best as it has the
largest expected profit of 183000.
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Sup #1
Build Large, best expected payoff of $53.6M using decision tree and EV.
Max(42, 22, -20)=42, build the small facility is the maximin choice.
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