New plant to absorb the backlog of demand

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Reference no: EM131725004

1. If the break even point for a nail salon is to service 200 manicures a month and the forecasted demand for manicures at that nail salon is 210 manicures a month, we would expect that nail salon to lose money.

True False

2. A producer of pottery is considering the addition of a new plant to absorb the backlog of demand that now exists. The primary location being considered will have fixed costs of $9200 per month and variable costs of 70 cents per unit produced. Each item is sold to retailers at a price that averages 90 cents. The plant will be capable of producing at most 40000 units a month. Should the producer consider this plant or not? Why?

a. Yes, the producer should build this plant because this capacity option is potentially profitable.

b. Yes, the producer should build this plant because it will meet the backlogged demand.

c. No, the producer should not build this plant because this capacity option can not possibly be profitable.

d. Enough information is not given to decide one way or another.

3. You are considering either taking public transportation (first the BART and then the MUNI) or using a ZipCar to get to work. If you take public transportation, you will spend 5 dollars for eachone-way trip. If you use the ZipCar, you will have to pay a flat rate of $50 a month and eachone-way trip will cost you an additional $3.5. Would it ever be worthwhile to use the ZipCar and if so under what circumstances?

a. There is not enough information given to compare the two options.

b. No, ZipCar would never be worhwhile to use based on cost-volume analysis because the fixed cost is too high.

c. Yes, ZipCar is the less costly option if you take more than 14 one-way trips a month.

d. ZipCar is the less costly option if you take more than 23 one-way trips a month.

e. Yes, ZipCar is the less costly option if you take 34 or more one-way trips a month.

Reference no: EM131725004

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