Unity University

Department of Marketing and Management

Instruction: Attempt all questions, show all the required steps and answers neatly.
1. Since the beginning of the month a local reservoir has been losing water at a constant rate. On
the 10th of the month, the reservoir held 300million gallons of water and on the 18th it held only
262 million gallons.
i. Write an equation that will give the amount of water in the reservoir at any time
ii. How much water was in the reservoir on the 14th of the month?
iii. When will the reservoir get empty?
2. ABC Company was established this year to produce and sell toys. The company has the following
operating results for the year.
Total Sales ............................................................................................50,000units
Total Variables cost...............................................................................100,000 birr
Selling Price ............................................................................................3 birr
Total cost is 75% of total revenue.
Assuming linearity, answer the following questions.
A. How much is the amount of the fixed cost?
B. Develop the total revenue, total cost and total profit equation in terms of quantity.
C. Determine the breakeven point.
3. 3F furniture dealer has always sold its merchandise through 4 company-operated stores. Last
year sales were birr 1million and net profit was 8% of sales. Fixed costs were birr 170,000. As a
result of shifting population and increased competition, the four locations have become less
desirable. 3F is considering eliminating its retail stores in favor of door-to-door selling. It is
estimated that sales would increase by 25% and net profit by birr 30,000. Fixed costs would
increase by birr 30,000 because operations would be moved to a low-rent warehouse. Required
a) What was the break-even point under the old situation?
b) What will be the break-even point under the proposed situation?
c) What birr sales volume must be obtained under the proposed plan to make as much profit as last
year?
4. The Breakeven point of a firm is 400 units in terms of quantity and 10,000 birr in terms of
revenue. Fixed cost is 2000 Birr.
a) Determine the revenue, cost and profit function in terms of quantity and sales.
b) Analyze the impact (on the breakeven point) of 5% increase & decrease of price, unit variable
cost and fixed cost citrus paribus.

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5. A firm sells a product for Birr80/unit. Raw material costs are Birr 14/unit, labor costs are
Birr10/unit and other variable overhead costs amount to Birr 6/unit, and annual fixed costs are Birr
250,000.
a) Determine the cost, revenue & profit function in terms of quantity and sales.
b) What must be the minimum amount of sales in units and in birr that should be sold to avoid loss?
c) Determine the total contribution margin if the firm sells 10,000 units.
d) Develop the breakeven chart and interpret.
6. The 2004 graduates of Unity University are planning to arrange a farewell party at Sheraton
Addis .The hotel charges fee of Birr 100,000 plus 30% of the ticket price. If the graduates decide to
charge Birr 300 per ticker for entrants;
a) Develop the revenue cost and profit functions in terms of the number of tickets sold
b) How many tickets must be sold in order to break-even?
c) Determine the break –even point in terms of the total amount of money earned from sales of
tickets
d) How many tickets must be sold to obtain a profit of Birr 30,000?
7. A company expects fixed cost of Birr 45.000 in plans to work on margin of 25% of retail, and to
incur selling expenses of 2% of sales and other variable costs of Birr o.o3 per Birr of sales.
a) Find the equation relating total cost to sales
b) Find the breakeven point
c) What will net profit before taxes be if sales are Birr 200,000?
d) If selling price is 10 birr, state the cost equation in terms of quantity.
8. ABC Company has sales price per unit for its only product at br. 13. The variable cost per unit is
br. 5. In the year 2003 the company's sales was br. 1,040,000 which was 5000 units above the
break-even output.
a) Determine the fixed cost
b) Compute the variable expense at the point of break-even.
9. ABC Company sells toys for birr 6 per unit. Variable costs are 2 birr per unit. Fixed costs are
37,500 birr. How many toys must be sold to make a profit before income taxes of 15% of sales?
10. Tiger Company's cost function for the next 6months is as follows: TC= 200,000 + 2Q
a) Find the Breakeven sales if the selling price is 4 birr/unit.
b) What would be the company's sales, cost and profit if it decides to shut down operations for the
next 6 months?
c) If, because of strike, the most the company can produce is birr 50,000 units, should it shut down?
Why or Why not?
Bonus: The owner of a travel agency receives 15% commission on all tickets that his agency sells.
He employs a supervisor at a salary of $5000. In addition he hires temporary help at $2.00 per hour,
whenever needed. One hour of temporary help is needed for each $10 received in commission.
Other expenses include rent $10 per day on a long-term contract, and interest expenses equal to
2% of ticket sales. Assume the office is open 250 days per year.
a) Determine the break-even point and earnings if ticket sales are $ 1,200 per day.
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