Mba Questions

Topics: Incentive, Costs, Variable cost Pages: 2 (823 words) Published: August 21, 2013
1. MBA has total fixed costs of $2,160 per day. The firm manufactures MBA advice kits. The kits have a short-run average variable cost of $48 and are sold for $66 each. Assuming constant per unit costs in the relevant range: (i) What is the breakeven level of daily output for the firm (= BE)? (ii) What is the degree of operating leverage when daily output is Q = 170? 2. Bob and Bill are college students. They are trying to decide what to do over the next summer. Bob's father has suggested that they both come and work at his plastics manufacturing company where each will earn $3,600 over the summer. Bill's father, who runs the local farmer's market, suggests that they go to a local resort area and sell fresh fruit and vegetables to tourists. Their markup on the produce would be twenty-five percent, so each $1.00 of revenue would involve a variable cost of $0.80. In addition to purchasing the produce, they would have to rent a location. The cost to rent a small roadside stand for the summer is $2,400. (i) How many dollars worth of produce will they have to sell in order to break even in an accounting sense? (ii) How many dollars worth of produce will they have to sell in order to break even in an economic sense? 3. In 1988, Du Pont's fiber division introduced a new incentive program for its 20,000 employees, including both management and lower-level employees. The novelty of the program was that a portion of the employees' annual pay (approximately 5%) would be placed into a pool. If the business exceeded its profit target for the year, then each employee would receive a multiple of the money placed in the pool as a bonus (e.g., if an employee's contribution to the pool was $100, then he would receive, say, 1.3 x $100). If the business profits were below the target for the year, then the employees would lose the money placed in the pool. The incentive program was adopted initially for 3 years. In 1990, due to a decrease in demand and an unexpected increase in...
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