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Cost and Revenue Functions Analysis

The document contains 5 questions about formulating revenue, cost, and profit functions for different business scenarios involving production and sales of goods over time periods. Information provided includes purchase and sale prices of goods, variable and fixed costs, revenue and cost per unit, and target profit amounts. Learners are asked to determine break even points and production quantities required to meet profit goals.

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Mansoor Samoo
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8 views1 page

Cost and Revenue Functions Analysis

The document contains 5 questions about formulating revenue, cost, and profit functions for different business scenarios involving production and sales of goods over time periods. Information provided includes purchase and sale prices of goods, variable and fixed costs, revenue and cost per unit, and target profit amounts. Learners are asked to determine break even points and production quantities required to meet profit goals.

Uploaded by

Mansoor Samoo
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Assignment

Q1: A car-leasing agency purchases new cars each year for use in the agency. The cars cost
$15,000 new. They are used for 3 years; after which they are sold for $4,500. The owner of the
agency estimates that the variable costs of operating the cars, exclusive of gasoline, are $0.18 per
mile. Cars are leased for a flat fee of $0.33 per mile gasoline not included).
(a) Formulate the total revenue function associated with renting one of the cars a total of x miles
over a 3-year period.
(b) Formulate the total cost function associated with renting a car for a total of x miles
over 3 years.
(c) Formulate the profit function.
(d) What is profit if a car is leased for 60,000 miles over a 3-year period?

Q2: A company produces a product which it sells for $55 per unit. Each unit costs the firm $23
in variable expenses, and fixed costs on an annual basis are $400,000. If x equals the
number of units produced and sold during the year:
(a) Formulate the linear total cost function.
(b) Formulate the linear total revenue function.
(c) Formulate the linear profit function.
(d) What does annual profit equal if 10,000 units are produced and sold during the year??

Q3. In the annual report to shareholders, textile Manufacturing reported total gross sales of
$7,200,000, total variable costs of $4,320,000, and total fixed costs of $2,500,000. Determine
textile’s break-even point in dollars.

Q4. Deluxe Tire Company finds that to produce each additional tire it costs $21.50. The fixed
costs of the plant operation amount to $126,000 per month. The tires are sold for $58 each.

a. Find the revenue and cost functions for the operation.


b. How many tires must be produced and sold in order for Deluxe to break even in a month?
c. How many tires must be produced and sold in order for Deluxe to earn a profit of $40,000 in a
month?

Q5. Jones Stereo Company sells stereo sets for $150 each. The parts for each stereo cost $39.50
and the labor costs $53 per set. Fixed costs are $16,000 a month.

a. Find Jones’ cost and revenue functions.


b. How many must Jones produce and sell every month in order to (i) break even? (ii) make a
$6,000 profit?

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