# Week 2 Quiz

Topics: Costs, Variable cost, Probability Pages: 7 (1386 words) Published: December 14, 2014

Quiz #1

Instructions: Answer 33 questions on this quiz. That means skip 3 questions. If you answer more than 33 I will choose up to 3 random numbers and will disregard those questions so only 33 will remain to be graded. All questions are worth the same point value (3 points each). Email me your completed quiz no later than Sunday, Nov 2nd.

Chapter 1:

TRUE/FALSE (1-9)
1) Management science involves the philosophy of approaching a problem in a subjective manner. FALSE

2) Management scientists use the terms "data" and "information" interchangeably--that is, the two terms mean the same thing. TRUE

3) A variable is a value that is usually a coefficient of a parameter in an equation. TRUE

4) Parameters are known, constant values that are usually coefficients of variables in equations. TRUE

5) A model is a mathematical representation of a problem situation including variables, parameters, and equations. TRUE

6) Management science modeling techniques provide results that are known with certainty.

7) Fixed costs depend on the number of items produced. FALSE

8) The break-even point is the volume that equates total revenue with total cost. TRUE

9) If variable costs increase, but price and fixed costs are held constant, the break-even point will decrease. FALSE

10) An increase in output typically results in an increase in the variable cost. (Note if the variable cost increase the total cost increase as well.)

11) The relationship d = 5000 - 25p describes what happens to demand (d) as price (p) varies. Price can vary between \$10 and \$50. How many units can be sold when the price is \$10?

d=5000-25p
if p=10 then
d=5000-25(10)
d=4,750

12) A production process requires a fixed cost of \$50,000. The variable cost per unit is \$25 and the revenue per unit is projected to be \$45. Write a mathematical expression for total cost. Cf=50,000

Cv=25
V=volume
P=45

TC=Cf+VCv
TC=50,000 + (V)(25)

13) Administrators at a university are planning to offer a summer seminar. It costs \$3000 to reserve a room, hire an instructor, and bring in the equipment. Assume it costs \$25 per student for the administrators to provide the course materials. If we know that 20 people will attend, what price should be charged per person to break even?

Cf=3000
Cv=25
V=20

Break-even when total revenue equal total cost

Total revenue=Total Cost
VP=Cf+VCv
P=(Cf+VCv)/V
P=((3000)+(20)(25))/(20)
P=\$175 is the price per person to break even

14) A newly opened bed-and-breakfast projects the following: Monthly fixed costs \$8000
Variable cost per occupied room per night \$40
Revenue per occupied room per night\$165
How many rooms would have to be occupied per month in order to break even?

Cf=8000
Cv=40
P=165
Total revenue=Total Cost
VP=Cf+VCv
V=Cf/(P-Cv)
V=8000/(165-40)
V=64 is the total rooms would have to be occupied to break even.

15) EKA manufacturing company produces part #2206 for the aerospace industry. The unit production cost of part #2206 is \$3. The fixed monthly cost of operating the production facility is \$3000. Next month's demand for part #2206 is 200 units. How much should the company charge for each unit of part #2206 to break even?

Cv=3
Cf=3000
V=200
P=?

P=(Cf+VCv)/V
P=((3000)+(200)(3))/(200)
P=18

A) \$12
B) \$15
C) \$18
D) \$20

16) A bed-and-breakfast breaks even every month if they book 30 rooms over the course of a month. Their fixed cost is \$6000 per month and the revenue they receive from each booked room is \$180. What is their variable cost per occupied room? A) \$130

B) \$140
C) \$148
D) \$160

17) It costs \$50,000 to start a production process. Variable cost is \$25 per unit and revenue is \$45 per unit. What is the break-even point? A) 1000 units
B) 1111 units
C) 2000 units
D) 2500 units

Cf=50,000
Cv=25
P=45
V=Cf/(P-Cv)
V=50,000/45-25
V=2500

18) Decision analysis is a ________...