MGSC 395 Exam 1 Timothy Fry
Analysis to compare processes by finding the volume at which two different
Break Even Analysis processes have equal total costs.
pQ = F + cQ
Break Even Quantity The volume at which total revenues equal total costs.
Variable cost (c)
The portion of the total cost that varies directly with volume of output.
Fixed cost (F)
Variables for Break Even The portion of the total cost that remains constant regardless of changes in
levels of output.
Quantity (Q)
The number of customers served or units produced per year.
Total cost equation Total cost = F + cQ
Total Revenue Equation Total revenue = pQ
Quantity Equation Q= F/(p-c)
A hospital is considering a new procedure 1000 patients
to be offered at $200 per patient. The fixed
cost per year would be $100,000 with total
variable costs of $100 per patient. What is
the break-even quantity for this service?
Use both algebraic and graphic approaches
to get the answer.
, MGSC 395 Exam 1 Timothy Fry
F sub b
The fixed cost (per year) of the buy option
F sub m
The fixed cost of the make option
variables for buy/make options
c sub b
The variable cost (per unit) of the buy option
c sub m
The variable cost of the make option
-Total cost to buy
Fb + cbQ
-Total cost to make
total costs to make/buy
Fm + cmQ
Q= (Fm-Fb)/(cb-cm)
A fast-food restaurant featuring hamburgers (12000-2400)/(2-1.50)=19200 salads
is adding salads to the menu
The price to the customer will be the same
Fixed costs are estimated at $12,000 and
variable costs totaling $1.50 per salad
Preassembled salads could be purchased
from a local supplier at $2.00 per salad
Preassembled salads would require
additional refrigeration with an annual fixed
cost of $2,400
Expected demand is 25,000 salads per year
What is the break-even quantity?
Analysis to compare processes by finding the volume at which two different
Break Even Analysis processes have equal total costs.
pQ = F + cQ
Break Even Quantity The volume at which total revenues equal total costs.
Variable cost (c)
The portion of the total cost that varies directly with volume of output.
Fixed cost (F)
Variables for Break Even The portion of the total cost that remains constant regardless of changes in
levels of output.
Quantity (Q)
The number of customers served or units produced per year.
Total cost equation Total cost = F + cQ
Total Revenue Equation Total revenue = pQ
Quantity Equation Q= F/(p-c)
A hospital is considering a new procedure 1000 patients
to be offered at $200 per patient. The fixed
cost per year would be $100,000 with total
variable costs of $100 per patient. What is
the break-even quantity for this service?
Use both algebraic and graphic approaches
to get the answer.
, MGSC 395 Exam 1 Timothy Fry
F sub b
The fixed cost (per year) of the buy option
F sub m
The fixed cost of the make option
variables for buy/make options
c sub b
The variable cost (per unit) of the buy option
c sub m
The variable cost of the make option
-Total cost to buy
Fb + cbQ
-Total cost to make
total costs to make/buy
Fm + cmQ
Q= (Fm-Fb)/(cb-cm)
A fast-food restaurant featuring hamburgers (12000-2400)/(2-1.50)=19200 salads
is adding salads to the menu
The price to the customer will be the same
Fixed costs are estimated at $12,000 and
variable costs totaling $1.50 per salad
Preassembled salads could be purchased
from a local supplier at $2.00 per salad
Preassembled salads would require
additional refrigeration with an annual fixed
cost of $2,400
Expected demand is 25,000 salads per year
What is the break-even quantity?
